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Stop Living Paycheck to Paycheck:10 steps to Financial Freedom

Updated: Dec 13, 2018

by William Sabin, CPA

Budgeting Insights

Gaining financial freedom is possible.  It’s not easy, it might take a long time, and you will have to work at it.  JUST GET STARTED

Getting started is the hardest part.  However, once you start to see results, it will motivate you. 

Financial Freedom is possible!!

How Much Money Do You Need?

The problem is for most of us, especially me, is that I'm driven by fear and greed far too often.  That goes for investing and living.  While made popular by various movies and the media, those emotions are not what life is about.

There must be a way to be frugal and retire from the rat race and to be able to rewire yourself to follow your desires, work for yourself, and give to the community.  But how?

The big question is 'how much do I need to retire'?  It really depends two main things: how long will you live and how much you will spend, net of earnings.

According to a report from the Economic Policy Institute (EPI), the mean retirement savings of all working-age families, which the EPI defines as those between 32 and 61 years old, is $95,776.

It appears from the above that most of us will not retire with a seven-figure portfolio.  Will most people keep working forever?  Is there a way to save more for retirement?

Let’s jump into the steps to financial freedom...

Find and record all of your debt.  House, credit cards, student loans, car, boats, etc.  List them on a spreadsheet showing the amount you owe, what you pay monthly and what interest rate you are paying for each debt.  Total them up.  Ouch...

Focus on paying down these debts.  Priority one is to pay down and eliminate your most expensive debt.  This is most likely going to be your credit card debt.  It is so easy to use a credit card when you do not have the cash in your pocket.  I use credit cards for almost every purchase as I get 1-2% back.  In addition, I hate having coins in my pocket.  However, we always pay off the credit card every month – without exception!

Create a budget.  Where is your money going each month?  This is a tedious step, but you really need to determine how you are spending your money before you can control how you spend it.  Makes sense.  Identify how much you are spending by category – rent/ mortgage, utilities, food, transportation, medical insurance, car insurance, debt repayment, etc. 

For a budget template you can download, click here

Look at your income and expenses.  Depending on where you live, you essential expenses might be outstripping your income.  You might need more income, but that is easier said than done.  What you can more easily control is your spending.  That might mean that you need to put yourself on a spending diet. 

Identify your spending habits.  Now that you have listed out your debts, tracked your expenses for a month and compared that to your income, you should have the beginnings of knowing where you have some bad spending habits.  $5 a day on coffee at work?  That is $25 a week or over $1,200 for the year!  Do you have plans to purchase something as soon as you get your paycheck?  Can’t save anything?  A closet full of clothes and shoes you don’t wear?  Addressing the bad habits is essential and really the key to getting out of debt and to start saving.

Cut back and stay on budget.  Generally, the best thing you can do financially is to pay off your high interest rate debt first – even before you start to save.  Make it a goal to pay off those credit cards and then never, never, never carry a balance from one statement to the next.  The costs are just too high.  Eventually, you will get out of debt if you cut your expenses – treat it as if you are at war – because you are – for your freedom.

Keep paying down your debt.  You probably did not get into debt overnight and you will not be able to get out of it overnight.  It might feel like it will take forever and it will be a hard process.  It’s very difficult to stay focused at this step – we are all bombarded daily that we need a new this or a new that, or a better something to make our life complete – to be happy.  Try to ignore it.  Stay focused on your goals of spending less, reducing debt, and increasing savings.  Forget the lie that buying something will make you happy.

Start Saving.  Now that you are well on your way to paying off your high interest debt, living within your means (spending less than you make), it is time to start building wealth.  These steps include building savings for emergencies but also for delayed purchases.  If you cannot afford something without going into debt, then, if all possible, defer/delay the purchase until you have the money. 

Invest wisely.  To be financially free, you need to plan for retirement.  See many of my other articles on investing for help in this area.

Teach your family.  Schools do not really teach students very much (if at all) on the short list of items I mentioned here.  It is really up to you to teach those around you.  Who better to teach, than someone like you.  At this point, you will have been through all the tough steps above and you will know how to get out debt.  Teach your kids how to handle money – they will love you even more for it. 

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