The majority of people in the world live paycheck to paycheck with little savings in the bank.
Imagine waking up in the morning with zero debt. Imagine never having to worry about how to pay your rent, mortgage, or groceries ever again. Imagine waking up in the morning with hundreds of thousands of dollars in your bank account. It’s all possible.
Depending on your current situation, it may require a lot of effort and sacrifice, but at the end of the day, money is a game. And if you don’t know the rules, you’ll probably be fooled by the game.
And (I know it’s not the best sentence to start a sentence with “and,” especially two in a row, but…) Fortunately, you have access to the Internet to read this article. If you can, try to guess. what? You belong to the luckiest percentile of humans that have ever existed, and you essentially have more control over your financial reality than any human being who has ever existed.
No matter your current situation, these seven steps will help you reach financial freedom faster than anything else.
Here are seven steps to achieve financial freedom, save for your future, and get out of debt.
1. Write down your current fixed costs
If you don’t have an accurate understanding of your current financial situation, you won’t be able to navigate the rough waters in your quest for financial freedom.
Write down all your fixed costs so you can see them directly. Rent/mortgage, property taxes, groceries, restaurants, gym memberships, medications, clothing, Netflix, Spotify, Tinder Plus — write it all down.
Once you know all your fixed, monthly, and recurring expenses, you’ll see them on the page in front of you…
2. Ask about the need for recurring fees.
Question all the expenses you currently pay so that you can ultimately save more of the money you are making.
Do you need to spend that much on rent, or can you live somewhere cheaper for a few years with a few more luxuries? Do you have to go to a nice gym, or do you own a workout? Can I buy equipment and save $1,000 a year? Should I eat out as much as before, or can I save money by cooking more often? Should I have my own Netflix account? ? Or can I split my family plan with someone?
In this step, you need to ask both the size of each expense (will the new decision minimize your rent or phone bill?) and the necessity of each. For example, why spend $100 a month on a gym membership when you can buy $200 worth of gym equipment and train at home?
If you can minimize your regular expenses, you’ll have more money at your disposal.
3. Pay off your debts in order of interest rate
Not all debt is created equal. For example, credit card debt from a late-night shopping addiction is very different from the mortgage you have (because the latter builds equity, whereas the former is like throwing cash into a dumpster fire. is).
If you have debts you are paying off, make paying them off one of your top priorities in life. Just as compound interest works for you when you’re investing your money in a high-yield savings account, it also works against you when you’re accumulating debt. The same fire that warms you can also burn you.
Pay off your debts in order of interest. In other words, if you have a credit card that charges 19% interest and another that charges 5% interest, you’ll pay off the 19% credit card first and end up paying a lot of extra money. I’ll make sure this doesn’t happen. Pay interest while reducing most of the principal.
When you are in debt, be disciplined enough to know that you have a thorough plan of action to pay off your debt, so that you can specify an exact date for paying off your debt.
If calculating this is too much of a headache for you to understand (many people get into a fog when money comes up, and rightly so), go to your bank and ask a financial advisor. Ask to talk to them and get specific answers. An action plan for timely repayment of debts.
4. Create an emergency fund
Once you’ve paid off all your debts, the next step to financial freedom is to build up an emergency fund. Your emergency fund should be at least $1,000, stashed away in a savings account (which you can name “do not touch”) for only legitimate emergencies. And in case it wasn’t clear, a beer with friends doesn’t qualify as an emergency, no matter how important community is to you.
After that, slowly build up your emergency fund so you have $20,000 to $30,000 (or six months’ worth of living expenses for yourself) so you’re prepared for whatever happens.
Life happens. Your car may need a new set of tires. Or maybe you get sick and have to take an entire month off work. Whatever happens, I’m ready. Once you have six months worth of savings, build up 12 months worth of savings. Once you reach that level, you should start thinking more seriously about investing your excess cash flow in various investment accounts (401(k), IRA, RRSP, TFSA, GIC, etc.).
The key to an emergency fund is to not touch it. It should be relatively liquid (basically a financial term meaning easily accessible) because it’s there in case you need it, but ideally it should accumulate interest over time .
5. Slowly integrate small sacrifices.
Whether you want to gradually phase out unproductive financial habits (e.g. drinking $8 iced coffee three times a day) or make regular contributions to a savings/investment account, the key is to take it slow. It’s something to work on.
Sure, some people benefit from an all-or-nothing, jump-in, all-powerful approach. But your financial habits have been formed over the years, so it may take some time to relearn financial habits that will serve you better in the future.
If you’re used to eating out all the time, try making breakfast at home first. Or, if you’ve never put money into a savings account, start by putting $20 in an investment account to see what happens when you incorporate small habits.
$20 may sound like a relatively paltry amount, but if you invested $20 a week in a savings account, you’d have just under $700,000 in your savings account after 50 years. So things like this increase over time.
6. Find ways to add more value to the world
Even if you reduce your expenses and save even a penny, there is a limit. At some point in your financial trajectory, it will be much more productive to focus on how you can make more money (and not obsess over saving a high percentage of your low income). (Don’t get stuck in a loop that continues).
Before you say, “But Jordan, we’re not all built to be entrepreneurs. We can’t create an additional source of income out of nothing.” I challenge that line of thinking. I would like to chant.
If you think about it, historically, the option of not being self-employed, at least to some degree, is a relatively new concept. Until Western industrialization began and factories and large corporations were established and provided employment for us, people had to survive primarily on their own. So when I see someone who has no desire to rely on entrepreneurship but wants to make more money in life, I say so.
On top of that, when viewed in the context of human history, the amount of opportunity available to all of us right now is truly unparalleled.
You can upgrade your skills and abilities (in many professions) for free by studying at your local library, searching on YouTube or Google, and using readily available online resources. You can also take free courses from Stanford and Harvard online. You can also generate a revenue stream (selling physical products, digital products, or services) in minutes using the Internet. This tool has never been easier to access.
You can’t increase the amount of time you have in your day, but you can always increase the amount of value you add to the world each hour. Value is what makes the world go around. Stop thinking about money and start thinking about value.
7. Put all the money you don’t need into a savings account/retirement account that takes advantage of compound interest.
Now that you know your essential monthly expenses and also know your monthly income, your next task is to allocate the maximum percentage of your money to savings. An investment account that uses the magic of compound interest.
For the uninitiated, compound interest is just a fancy way of saying that the money you invest will make money, and the bonuses and bonuses you earn will also make money. And it will last forever.
Over time, compound interest can do wonders for your overall savings. This is not 1+1=2. Rather, it is closer to 1+1=11.
Here are some simple examples to show how powerful this feature is.
- Let’s say you have $100,000 in savings and want to buy a house within 10 years. You decide that you can invest $3,000 each month in a savings account toward your goal of becoming a homeowner. If you invest in an account that earns an average of 8% per year, at the end of his 10-year period, you will have saved/earned $770,802.13 (which is 310,000 in accumulated interest, aka bonus money). equivalent to more than US dollars).
- You are 20 years old and always intend to earn a modest income because working hard to earn a large annual salary does not really appeal to your values. fair enough! If you save just $20 a week for 50 years, you’ll have saved/earned $690,254.15 by the time you fully retire at age 70. Enough money to live on for the rest of the year (because only a portion of that money is taken out each year, and most of that money continues to generate interest).
You get the picture. Especially for people who are not very active in managing their money (day trading or playing the stock market), stashing away savings can be beneficial.
Personally, I stash a large percentage of my savings with robo-advisors. wealth simple. My portfolio has returned an average of 14% this year, compared to 8-10% for the past two years, so it’s been very strong for me.
In short, live humbly, add more value to the world, and spend your money on yourself. That’s all the secret. If you go from seeing money as something you use to buy things to thinking of each dollar as a seed that can grow into a money tree that yields more money, you’re already on the path to greater financial freedom. I’m on my way.
Also, if you’re on my website’s email list, be sure to click “Reply” to any emails from me to let me know what you liked best about this article or if you have any requests for articles or topics. Please let me know. Look for me to dive into it in the near future.
Jordan Gray has been a five-time #1 bestselling author, speaker, and relationship coach on Amazon for over 10 years. His work has been featured in the New York Times, BBC, Forbes, Huffington Post, and more.
This article was originally published at: jordan gray consulting. Reprinted with permission from the author.
