Saturday, 26 September 2015

3 Steps to Financial Freedom.

Financial freedom means different things to different people. To some it means working till 65 and not having to worry about money anymore. To others it means still working but choosing what you want to work at. To me it means leaving my good paying job with benefits and pursuing a more relaxed lifestyle where my money works for me and not the other way around. Though this may sound too simple, the truth is if you dedicate yourself to these 3 steps you will become financially secure.

Step 1. Cut your expenses!

If you are living day to day or paycheck to paycheck that is the first thing that needs to change. Take a dollar and put it in a jar, stop buying your takeout coffee or pack a lunch. If you are an impulsive person stop carrying cash or your Credit Card. (I remember about 15 years ago I used to place my Credit card into a Ziploc bag full of water and put it in the freezer to ensure I wouldn't use it.) Take a grocery list for example, 2/3rds of the average persons grocery store purchases end up being an impulse purchase. What ever it is, you need to find a way to have a little extra at the end of the month.

Step 2. Get your self out of debt!

We have all heard the saying, "Money is the root of all evil" but it is just not true. Evil is just evil, and debt is its understudy. Every time that you make an interest payment on your consumer debt you are taking a step away from the end goal of financial freedom. Now take that money that you have found in the last section and put it on your debt. Make a list of all your debt payments from smallest to largest. You are most likely you are already paying the minimum payment on all of these debts so put the rest of your money that you have saved on your smallest debt. This will have the biggest effect on your bottom line as every month now your minimum payment will be lower and therefore your savings will be higher. Take that new amount of money saved plus any additional money that you can to keep paying down the smallest debt until it is gone. Once that is gone, now you can move the rest of your debt repayment to the next smallest and get that one paid off. Over time your debt repayment money will grow and grow as you pay off the smallest debt on your list until they are all gone. This strategy is called the dept payment snowball.

Step 3. Make your money work for you!

Alright, now you are debt free but you are still a long way from being financially free. However all that money that you were paying towards debt can now be put to work for you. Sure if you miss your daily "Double Double" go ahead and get one but don't make it a habit again. My personal favourites are dividend investing and owning investment property. It is called passive income and it will work while you sleep. With dividends you consistently get paid every dividend reporting period (usually quarterly) and they are taxed very kindly unless they are placed in a tax free or taxed deferred account and then they aren't taxed at all. With the rental properties you get paid usually monthly but will have some extra responsibilities to deal with as well as a few headaches. With the extra revenue you make you will be able to save more, and every dollar you save will be making you more and more. Now instead of the debt snowball, the saving snowball has been activated.

These are the three things that you need to do to in order to become financially independent. This is how I am getting there how about you? 

Do you have a story you want to tell, leave me a comment, I would love to hear about it!

No comments:

Post a Comment