We all want more money and to retire sometime before we are too old to enjoy retirement, don’t we? We can achieve this. And we can do it by developing rich habits. Check out the seven steps to financial freedom right here.
Spend Less
The most important habit to get into from the start is spending less. This can take some time to learn and do. But if you are serious about taking control of your financial life this is at the top of the list. If you go shopping and plan on spending $100 and walk out after spending double that amount then you are in the same boat as the majority of people in the world.
Impulse buys, sales, clearance are all geared to suck us in and spend way more than we had planned. By creating a list and itemizing every single thing you want to buy, you can focus on what is needed. This will help you to not just browse and pick up items that you don’t really need.
One major pitfall in shopping is stores like Walmart and Target that combine everything in one place. You go in for groceries and cannot help but notice the sales and take a detour from your plan.
You should split that up. Only go for groceries to the grocery store. On the other hand if you are in need of new shoes you can add food items to the list and pick them up at Walmart. Justt don’t make your grocery destination for you main weekly shopping in a combined store.
You should also use coupons. Get them in the Sunday paper or get some coupon apps on your phone. You can save a lot of money using the coupons, especially if you grocery store has double coupon days.
You can also get cash back from your receipts now with many apps such Ibotta and ReceiptPal. Easy to install and signup and take a picture of the receipt to get your cash.
2. Earn More
This one seems like a no brainer, but other then getting a higher paying job we all get stuck and complacent about our jobs. Then we just take the 3% raise they give every year. If you don’t like your job anyway, then by all means do something about it. But if you are happy at your job but could use more money, then it is time to get a side job. There are many ways to earn extra income, from a part-time job to delivering food.
Living paycheck to paycheck is no way to live. If you want to become financially independent, spending less and earning more are the only way you are going to achieve it.
We all see those people driving around in expensive cars, wearing expensive clothes, and can be envious, but are they financially independent? They too may be spending more than they earn and are in debt up to their eyeballs. They do not have rich habits either and one major life event could bring their house of cards down in one fell swoop.
I found this book called “The Millionaire Next Door” by William D. Danko and Thomas J. Stanley Ph.D. and it was a real eye-opener. The basic premise of the book is that you can build wealth regardless of your financial situation. You can build wealth by saving, being resourceful and generating multiple streams of income.
They interviewed people for this book that are wealthy, but live well below their means. They are the guy next door. He has a normal sized house and regular cars. But he has achieved financial independence by being frugal, and deciding not to be in debt and pay high interest fees. He doesn’t need an opulent house to get self-gratification by having others envy him. He is happy with living, by spending less than he earns.
I highly recommend this book for everyone who needs to get their mind straight to be able to focus on the true way to financial freedom and happiness. It will make you think differently about buying a $400 dollar wallet or a $10 wallet. They both hold your money in the same way, but you will have more money if you buy the cheaper one instead of getting someone else rich while you remain poor.
3. Set A Budget
If you have ever created a budget in the past you know how hard it can be to stick to it. But this is the only way to get control of your money so you can see where it is going every paycheck. Once you see where you spend your money, you can then choose where to cut back on frivolous spending in order to save.
By budgeting every paycheck it will allow you to spend and save in the most productive way possible, get out of the paycheck to paycheck grind and actually have money available daily for those things that come up that are important.
You can create a spreadsheet to manage your budget or use one of the many apps that are out now for budgeting, such as YNAB. There are also options available in Microsoft Excel templates and Google Sheets.
There is nothing I like more than to see money still available after paying all my bills and grocery shopping. It is a comforting feeling, unlike the “being broke” feeling.
You can not only use your budget to get control of your spending, you can use it to track how much you are saving for your emergency fund, vacation fund, Christmas, early retirement or whatever is your goal. But without a budget you will not succeed in your goals and find you have no money left a few days after you get paid.
4. Pay Off Debt
One of the best ways to gain control of your money is to pay off debt. Very important to start with your highest interest rate debt because over time you are paying so much more to these then you are to a smaller interest rate. Credit cards are about the highest interest rate for most people. Pay those off and do not use them again. If something comes up then you use your savings specifically the money in your “emergency” fund.
If you have your car breakdown and room on your credit card but NO savings you will be right back in debt with a high interest rate. That is why the emergency fund is crucial to have.
To get started on this you can do it however you feel comfortable. Put half of what you are setting aside to your emergency savings and the other half to pay off credit cards. So if you alot 20% per month, 10% to savings, 10% to debt. If you just pay off your debt with 20% and save none, then you fall back into having to use your credit cards.
Other than spending on trivial items that you can live without interest is the biggest money drain on your finances.
5. Auto Saving
And this brings us to setting up your savings to win at money! Most companies have the direct deposit option at work. You can set it up to include a savings account also. Once you have created your budget and figure out how you can cut spending you will know how much you can comfortably live on and the rest will be saved.
This is separate from your emergency fund. This savings could be for a specific goal, such as down payment on a house or a summer vacation. Or you can simply put it into a savings account like Wealthfront or Ally (both services are savings/investing accounts,) where you can invest it to see your money grow. Nothing like see your money working for you and making you money.
6. Investing
Investing is a huge part of becoming financially free. But it is also the most complex. As I learn and grow in my investment strategy I will share all my successes and failures with you.
Since we live in a “consumer” society and not a saving society you first have to rethink your habits. Create a budget to learn to live only on what money you have, in order to free up more and more money for investing.
There are a lot of ways to earn more income to invest, but you have to practice it and truly invest that income. Without investing your money you will never be free of the 9-5 job.
Most of us invest at work with our 401k’s but what do you really know about investing? A financial adviser is expensive so you need to educate yourself so you can invest that money instead of paying someone else to do it for you. Which brings us to number 7.
7. Learn | Learn | Learn
I cannot say that word enough. Learn. That is the only way you are going to be able to become financially free one day. I don’t mean at a college, that will just put you in more debt. I mean read everything you can get your hands on. Books, blogs, ecourses, YouTube videos, listen to podcasts. There is an enormous amount of information out there that you have free access to. Get off of Facebook and Instagram and Google “financial freedom” or “building wealth” and any other term you can think of and start reading and doing.
One tip: When you are driving put on a money podcast. You can learn so much on your way to work and it will help keep you motivated throughout the day. A great way to discourage your spending on nonsense that you can invest instead.
Summary
If you follow these 7 steps, you will be well on your way to financial independence and living your best life. No boss breathing down your neck, no alarm clock to wake you. Doing what you enjoy and hopefully making money off of it as a side hustle.
Any tips or tricks that you care to share, please leave in the comments below. Thanks!