Steps to Financial Freedom – Choose Which Way you want to go and take the first step!
Financial Freedom is a state that many of us would like to achieve and maintain. There are a few habits that people who do have financial freedom have. Regardless of your current balance (positive or negative) in your bank account, if one of your goals is achieving or maintaining financial freedom, there is always the first step you need to take towards it.
Just like there are many various foot prints in the sand in the above image, each of us has a different foot print, that is different financial goals and living situations. However, the basic movement (steps) remain the same, no matter how small or big your foot (bank account) is.
Below is a list of few basic steps that if you follow and master them, it will create or maintain your stable base on which you can build your financial freedom.
Step 1) Know your financial situation.
What is the dollar amount of your assets (cash, bank balance), your loans and liabilities? Write that down.
Know exactly how much is your income and expenses each month. How much do you spend on food each month? On education? Going out? Transportation? On what else?
How much money do you need currently a month on your necessities (rent, food, transportation, etc.).
Step 2) Be clear on your financial goals.
Do you have a financial goal in mind that you would like to achieve next year? In 5 years? 10 years? If yes, write it down. If not, take the time and do some research to find out how much money you would like/need to earn to achieve the lifestyle that you desire. What would your desired home cost? Or the vacation that you would like to take? Or charities that you would like to contribute? Or provide for your family?
Step 3) Keep educating yourself on finance management and create a financial power plan.
There are many ways to educate yourself about how to manage your finances. There is a lot of information out there. At the beginning, it may be overwhelming and so I recommend the following step as your first one, if you haven’t done so already.
The idea is inspired by the book Secrets of the Millionaire Mind by Harv Eker. This book was listed at one time on the New York Times bestseller list and was #1 on the Wall Street Journal’s business-book list.
Set up 6 different bank accounts. If you are self-employed, I suggest you add 7th, for your estimated taxes.
Either from each deposit into your account or each month, disburse your money into the following categories.
1. Necessities account (rent, food, transportation, other necessary expenses).
2. Financial Freedom Account (Money for future investments and creating passive stream of income.)
3. Long Term Savings (Account for your kids’ college fund, or your bigger purchases – car, house, etc. or for emergencies when you need cash)
4. Education (Courses, Trainings, Books, Software, something that you invest into your own growth).
5. Play Account (This money you need to spend to do something fun, something that feels luxurious, as if you already had the financial freedom! No matter how small the contribution is, if it is at the beginning just buying delicious cup of coffee instead of making it at home, do it!)
6. Give Account (Charity, gifts to others.)
Harv Eker suggests that you put 50% of your income each month into your necessities account, and into the other categories you contribute by 10%.
I suggest, be clear on your necessary monthly expenses and on what percentage of your income goes each month into your “necessities account”. It can include deposits going towards estimated taxes, if you are self-employed. Sometimes, to make it even easier to calculate, is to make a separate account for estimated taxes only.
Once you have your necessities figured out, determine percentages that go into the other categories. And stick to the plan at least for a year. After a year, review your goals and see your progress and how this strategy worked! Let me know!
More tips on how or where to invest your money from your Financial Freedom Account in the other blog posts.
To your success!
Lucie Tesar
