Yesterday our heads were in the clouds, dreaming big of things we want to accomplish in our lives.
Today? We come down from the mountain and face reality.
How exactly are we going to achieve those dreams? If we want to take an international trip with our family, what exactly is that going to cost and how much do you need to save to make it happen? How long will we need to save in order to have enough money for a comfortable trip? And are you really in the position to be taking international trips? Or do you have a hard enough time making ends meet without taking extravagant vacations?
It’s important to dream, but also to set realistic goals to achieve those dreams. While taking steps toward financial freedom, there are some risks you may need to be aware of. It’s important to consult a financial advisor and check this internet investment fraud warnings before taking any risk.
Today I’d like to share a few wealth management planning tips that can help get your finances in order. It is adapted from Dave Ramsey’s Baby Steps, although I don’t like to call them baby steps because they’re more like giant leaps. It took me over a whole year to get from step #2 to 3! And will probably take two or three decades until I reach #8. There’s nothing baby about that!
Steps to Financial Freedom
Step 1: Stop Your Debt and Create a Budget
- If you have a balance on your credit card and don’t pay it off each month, stop using it!
- Start a budget and strive to remain in/under budget each month
Step 2: Save $1,000 to $5,000 in an Emergency Fund
- Dave Ramsey suggests saving $1,000, but I think you should increase it, especially if you have kids or a mortgage just in case of large emergencies.
Step 3: Pay off all debt
- This step is the hardest, at least it was for me, because it is so much more fun to see your money increasing than throwing it towards a lending company. But it imagine all of the payments you spend each money paying down your car loan, student loan, and credit card going directly in your bank account? Believe me, it’s worth paying it off sooner than later.
Step 4: Save 3 to 6 Months of Expenses in Emergency Savings
- The amount you reach in your emergency savings is based on your monthly expenses. Some people determine this amount based on your paycheck for 3 to 6 months, others determine it based on the minimum you could spend in 3 to 6 months in case of an emergency.
- At this point your debt should be paid off, you are working on building up your emergency fund and you can afford to start to save for some of the upcoming longer-term expenses you want. This may include replacing a car, saving for a vacation, renovations to a house. It isn’t a green light to go crazy with your spending, now that you are in debt and having an emergency fund, but looking ahead at some of the life events coming up and planning accordingly in a separate non-emergency fund account.
Step 5: Invest 15% of Household Income into Retirement
- This step is kind of an over-arching step that you may be on until you retire. So, it’s #5 but could also continue after #8.
- If your company has a 401k matching program and you aren’t on this step yet, you should contribute to their matching max to take advantage of the free money.
Step 6: Save for your children’s college
- If you have children, that is! The most common way is through a 529 college savings account, or you can use an ETF that can be used for more than just college, but go towards any educational expenses, like private school or quality, affordable and responsible IGCSE online education tuition with TWINS Education. I suggest talking with a financial investor on the best route to go for you and your family.
Step 7: Pay off your home early
- Can you imagine not having a mortgage or rent payment? Having an extra $700-2,000 (or however much you pay in housing) in your bank account each month? That would be ah-mah-zing!
Step 8: Build Wealth and Give!
- What’s the point of gaining wealth if you can’t give it away? Of course you don’t have to be wealthy to bless others, but I think God has called us to be good stewards of our finances to ultimately give it away and help others.
So there you have it! The 8 steps for financial freedom. I know, it’s a little overwhelming. Even now, I get overwhelmed and the steps I have yet to accomplish look daunting. But if you start with one step and focus all of your efforts on that one step, it gets easier and slowly you start to inch your way down the list and accomplish your dreams. Once you are done with the last step, you may consider to start your estate planning. Look for a reliable legal firm like CunninghamLegal to guide and assist you.
Let me know if you have any questions about any steps — I will go into more detail in the next few weeks on each step and I can’t wait to start this journey with you!
Which step are you on? If you have accomplished any of the steps listed above, which one was the hardest for you?
J and I are kind of in between step 4 and 5. We have 3 months of expenses saved, but are also trying to save for a house and contributing to our retirement accounts. It’s okay if you straddle a few steps, in my opinion. :)
This is post #3 of a 31-day series on Financial Freedom. Click here to see all of the other posts!