3 Steps to Financial Freedom

I was taught fairly early on by my mentors that if I couldn't afford something in cash, I shouldn't have it, period. I didn't always follow that advice and typically didn't fare well when I strayed from it. For the most part, it is advice worth following, especially if our desire is to become financially independent.

 

     As ideal as that advice may seem, however, I realize it is not always practical. Look, I'm a realist. That said, however, the surest way to ensure we never reach a state of financial independence is through accumulation of debt. In other words, where debt resides, financial freedom cannot. So, if you need a car, find one you can pay cash for or choose one that allows you to structure the shortest terms of repayment at the lowest rate. Your choices will clearly define your ultimate financial destination or circumstances. 

 

     Financial independence requires a determined mindset that calls upon our ability to exercise disciplined decision making. If you desire to be financially independent and are of the mindset to walk away from immediate gratification, make a decision to get there quickly. Make it your first and foremost priority to reprogram your thinking that addresses your basic needs while keeping in mind your overall objective to escape the oppression of not having enough money at the end of the day, week, or month.

 

     The real truth is, ANYONE can be financially independent. Contrary to traditional beliefs, income is not a factor. The right state of mind is the only factor. Case in point - how many of you know someone who has received a pay raise only to increase their standard of living right along with their increase in pay? Instead of allowing the new pay raise to provide financial relief, these people choose instead to buy a new car, a bigger house, or a new flat screen TV. More often than not, they use the pay raise to allow themselves to go beyond their standard of living, extending themselves into credit card and loan debt, thinking they can easily justify it by the pay raise they just received.

 

 

I'm still amazed by some of the people I know who have thousands of dollars in credit card debt as they continually make conscious choices to go out to dinner, take vacations, shop for expensive new clothes, and overextend themselves at Christmastime.

 

     Am I saying that if you're in debt you shouldn't go out to eat, shop, take a vacation, and have a good time? Yup, that's exactly what I'm saying. If it costs money you don't have then don't do it...especially if your desire is to be financially free. If it's not your desire, then you've probably stopped reading this article by now anyway. Those of you who are still reading are to be congratulated on taking the initiative to discover just what it takes to be finically free and maybe even find the keys to great wealth and prosperity along the way.

 

     OK, assuming you're at least good with the sentiment of what I'm saying, and you're serious about breaking the bonds that bind you, here's what to do about it.

 

1. Cut it out!

 

     Go through every single expenditure you have and determine if it's essential to your basic needs. If not, eliminate it...cut it out...especially if it's financed or attached to some kind of "easy payment plan." If you have an extended warranty, drop it. If you have full coverage insurance on a used car that's paid in full, drop it to liability only. Why drive a new car if you cannot afford it? Chances are, it's not the car you want anyway.

 

     Imagine how you'll feel when you can drive the car you really want once you're financially free. Now imagine having no monthly payment. It's OK, you can smile as you imagine that.

 

     By following some very simple steps - the fundamental principles of money - you can in fact be financially free. Would it be worth sacrificing a bit today so that you can drive your dream car in the future, so that you don't have to carry debt, so you can be prepared for an unforeseen emergency situation, so you can take paid-up vacations? It's a decision you have to make in order to realize. But that decision is yours to make and no one else's. But I'm here to tell you it can be done. You just have to want it bad enough to change your habits.

 

2. Live Below Your Means

 

     This step could actually have been placed as the number one step because of its importance. If there's nothing else you get from this article, remember this - if you live below your means you will always have room to accumulate wealth through savings and debt reduction. It makes so much sense if you think about it. If you can afford $1,000 per month in rent, yet elect to live somewhere for less, you can (and should) save and invest the difference.

 

     We're consumers by nature. Saving and investing money is of such low importance to people these days that it has become an afterthought or a topic that most people think they have time to do when they "make more money." Don't adopt that mindset or you will never ever be free from the stressors and frustrations of living under the oppression of financial strain.

 

3. Save and Invest

 

     There is no higher priority financial obligation than paying yourself, yet most people - if they save anything at all - place this obligation at the end of the list. This is precisely where a new mindset is of paramount importance. A financially determined mindset empowers you to save first and THEN to distribute the rest to your "other bills." This mindset does so many wonderful things for you. First, it changes the internal programming of your mind from one of insufficiency to one of abundance. The second thing it does is to force you to live within your means. You also begin to develop the disciplined mindset of someone who is in control of their finances as well and their financial destiny. Oh, and there's that accumulation of wealth thing that begins to happen as well.

 

~ Bonus Tip ~

 

     If you have life insurance (and most of you should have it, especially if you have a family), take a close look at exactly the type of insurance you have (yes, there are different types). If yours is anything aside from a "Term" policy, chances are, you're getting ripped off! You can save a TON of money by starting right here with a close examination of your life insurance and a simple re-structuring of this expense. The various forms of life insurance that are beneficial to insurance agents (not you) are Whole Life, Universal, Variable Life, Index, etc. Avoid them all except for Term policy. For more insight on this, send me a note or contact your insurance agent. Chances are, if you have anything besides Term, your agent will get defensive with you if you give them any indication you are thinking of converting to the (financially) smarter option of a Term policy.

 

 

     Financial freedom is liberating! Having the peace of mind of knowing there is little that can happen to disrupt you in terms of money is a huge boost to your confidence and peace of mind, not to mention to your relationships. In fact, money issues account for the number one reason for relationship stress between couples. Why not eliminate this and take it off the table right now by reprogramming your mind to one of prosperity, abundance, and sufficiency? It is not only possible, it is guaranteed...if only you begin with a determination to shift your thinking.  

     May you experience the joys of financial independence!

Until Next time...

 

~G~

 

"A big part of financial freedom is having your heart and mind free from worry about the 'what if's' of life."    ~ Suze Orman

 

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Time Value of Money

If you’re younger than thirty years old, you possess the single most desirable component of the investing universe–time. Time is the one factor that is the most powerful when it comes to your money growth.  If you haven’t yet hit the big 3-0, you have a lot more going for you than you may realize. A little sacrifice now can produce huge rewards for you over the next several years if you follow a few basic rules. So, in essence, you have an investing advantage that a lot of “older” people don’t–time.

 

To make the most of the advantage of time and money during this phase of your life, you should consider these 5 basic truths. Apply them and watch the essence of your financial outlook take shape before your very eyes.

 

1.      Start Now.

There’s no time like the present to radically affect the future, especially when we’re talking about your financial future. When I was twenty-four years old I was fortunate enough to have a friend, a mentor, who stressed the importance of starting early when it came to investing for my financial future. After I had exhausted just about every excuse I could muster on reasons not to invest, he introduced me to the magic of compound interest. It was all I could do to contain my excitement.

I began by reconstructing my finances and my way of thinking. Doing so put my financial future on a very different path than it was on. I started by putting aside $25 per payday. At first, it was one of the toughest things to do. Not so much because I needed the money, but more because I was used to consuming the entirety of my paycheck on things my family and I “needed.” Since then, I’ve learned quite a bit about recognizing a true need from a fleeting desire. What a difference it has made.

I gradually increased the contributions to my savings. My first goal was to be able to save 10% of my income. I managed to hit that goal rather quickly, not because of pay raises (although with every raise since then I have put aside a portion for savings) but because the desire for financial freedom was stronger than the desire for immediate gratification.

As the amount of my savings grew I became even more motivated. I increased to 15% and then to 20% and to a figure that you would likely find difficult to believe today, all while increasing my standard of living.

If you simply cannot see a way to set something aside, keep reading. Perhaps some of the remaining concepts will help you to discover areas that’ll free up money within your personal budget so you too can start now. Remember, nothing begets nothing; while something compounded increases itself. In other words, if you do (or save) nothing, nothing is exactly what you’ll have. Absolutely no one cares about your money like you do. Take control now!

 

2.  Live within your means.

One of the toughest financial concepts to control is the ability to live within our means. Oftentimes, it takes more of a psychologically disciplined approach because of the inevitable competing demands for our money, not to mention our appetite for a quality lifestyle.

As we begin to make money, most of us tend to begin building a lifestyle just beyond what we can afford, effectively living outside our means, because after all, we expect to get raises and grow into a lifestyle. Why not push it a bit to “get ahead?” We begin to rationalize our desires by re-labeling them as needs. What occurred to me over the years as I was saving a significant portion of my income was the fact that I never felt as though I had sacrificed my standard of living. My family and I simply became accustomed to living well within our means while validating the relevancy of desires versus needs. Buying a car, getting married, and purchasing a house are just a few of those needs. Here’s a tip: no one really cares what kind of car you drive. Sure, the BMW hard-top convertible is nice, but is it worth sacrificing your financial future for? Keep in mind that a car is among the biggest obstacles between you and the success of a secure financial. Apply the car example to just about any aspect of the concept of living within your means and you’ll quickly realize the essence of the magic behind this truth. By the way, some people never realize this foundational truth. So master it and watch how you soar past your peers as they wonder just how you’re doing it.

 

3.     Pay down debt.

Every dollar that’s tied up in paying down debt is one less we can use to save for the future. Create a plan to reduce debt by devising a plan and sticking to it, which will, in turn, allow you to allocate more money toward your savings. This concept could not be truer than for credit card liabilities. Find a way to reduce or eliminate your credit card purchases. Few will disagree on the amount of stress credit cards can bring into our lives. Take control as soon as humanly possible. Transfer balances from high-interest cards to those with lower rates. Ideally, find a card with a 0% introductory APR, and pay the balance off in full before the zero-percent interest clock stops. And seriously consider how your next credit card purchase will affect your savings plan the next time you feel compelled to use it.

 

4.     Fund retirement accounts.

Building a solid foundation for retirement right now is critically important. With compound interest rates accumulating over time, until retirement, the principle amount you have to save today to meet your goals pales in comparison to amounts you’ll need if you wait. By starting now, versus the less desirable alternative of waiting, you effectively “automatically” increase your gradual standard of living simply because of the power of time. Should you decide that waiting is your only alternative, it is still a better choice than not investing at all. Realize however, that the time value of money is extremely difficult to recoup and is a rather expensive missed opportunity. The amount of money one must invest in order to compensate for a “late start” increases exponentially over time. Why not act today while you have time on your side along with the advantage of tax-deferred (and in some cases, even tax-free) growth opportunities that comes with retirement accounts?

Put aside as much as possible into your retirement plan at work and at least enough to receive the maximum match your employer offers. Not doing so effectively results in a net loss to your bottom line because you miss out on “reward” money your employer is offering for your commitment to save money for yourself. If you can squeeze out even more money from your budget, contribute to a Roth IRA as long as you qualify for doing so.

Make a promise to yourself and enlist the commitment of your partner to ensure the money you’re saving for retirement won’t be used until then. Sure, you can take money out of a 401(k) or IRA before you retire if you absolutely must, but there’s generally a penalty–and taxes, too–for doing so.

 

5.     Change your financial mindset.

For some of you, retirement may seem like such a distant concept. And, for those fortunate to say that, good for you! Allow it to be a green flag that gives you permission to begin your journey toward a secure financial future. The sooner you get started, the better off you’ll be…the further ahead of your peers you’ll be, the sooner you can claim financial independence, quit your job, spend time with family, play golf, drive what you want to drive, live where you want to live…how you want to live. By adopting sensible money habits, conquering your debts, and saving for retirement early in life, you’ll reap the reward of a secure retirement.

Until next time!

- G -

"Time has a way of reminding us of its perishable nature in the retrospect of our reflections."

Gary Westfal -

 

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