7 Steps For Financial Freedom

Are you searching for ways to achieve complete financial freedom? Here are the steps you should take in your personal finance journey to set up your life to live financially free.

Don’t want to read? Click here to check out my YouTube video on this topic!

WHAT IS FINANCIAL FREEDOM?

Financial freedom is having 0 debt and enough money to live comfortably in retirement. This blog is going to cover the basic steps to do this in a traditional career path.

STEP 1: INVEST IN 401K UP TO COMPANY MATCH

First thing is first, you have to pay yourself first - this means investing for your retirement.

If your company offers a 401k match, you need to contribute up to that match because not only are you not investing in your retirement and losing out on years of compound interest, you are also not capitalizing on free money that your company would otherwise also contribute to you.

STEP 2: SAVE 1 MONTH EMERGENCY FUND

40% of Americans are not able to cover an unexpected $400 expense. You don’t want to be part of this statistic. 

Now more than ever it is apparent how critical having a savings account is and having 1 month of expenses saved up will help you if you have any sort of emergency, including broken appliances, medical expenses, layoffs, etc.

 I recommend putting this money in a “high-yield” savings account to keep this money liquid.

STEP 3: PAY OFF BAD DEBT

Bad debt really is anything with high-interest rates that does not contribute to your assets. Some of these include credit card debt, car loans, and yes, student loans.

You will want to pay these off as soon as possible, my recommendation is to pay the debt with the highest interest rate first, but some may prefer the “snowball method” of paying off the smallest amounts first. Either way, you want to get these financial burdens off of your plate.

STEP 4: SAVE 3-6 MONTH EMERGENCY FUND

Now that the bad debt is cleared up, we need to save for a bigger emergency as 1 month of expenses really limited if things go bad fast.

Depending on your career and risk tolerance, you will want to save 3-6 months of expense. You can mix these savings between high yield savings and bonds (maybe even index funds if you have a higher risk tolerance), but I recommend saving in low-risk investments or just putting it all in a high-yield savings account and calling it a day. This is your safety net and it should not be used as a high-risk fund.

STEP 5: INVEST 20% OF GROSS INCOME IN INDEX FUNDS

When you have your emergency fund set, we can now work on accumulating wealth. This means investing 20% of your gross income into index funds. You can do this in your 401k, IRA, brokerage accounts, etc.

Putting away 20% per year is all part of paying yourself first and with index funds averaging about 7% returns per year, the compounding effect will be substantial when you are of retirement age. 

No matter what the stock market does, keep investing. I recommend that you automate this so that you don’t get tempted to make unwise decisions based on fear or greed.

STEP 6: BUY PROPERTY

The investment that makes the most people become millionaires is real estate.

Your ideal property should have monthly expenses that are 30% of your gross monthly income. The expenses should include, the mortgage, interest, taxes, insurance, and HOA.

STEP 7: PAY OFF DEBTS OR MAKE INVESTMENTS         

The last step is to clean up your debts and make other investments with your excess cash. 

The largest expense in retirement is typically living expenses. By this time, you should pay off the rest of your mortgage to lessen your expenses.

After you have paid off your mortgage, I recommend using your excess funds to either save, invest in riskier assets, donate, really whatever you want!

Once you’ve completed all of these steps, you should be financially free and independent!

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How to Graduate College Debt-Free

Student debt is a $1.6 Trillion problem in the United States with about 70% of college students owing money by the time they graduate. How can you beat the statistics and graduate debt-free? Let’s get down to business.

Don’t want to read? Click here to check out my YouTube video on this topic!

QUICK FACTS

The average student loan debt is about $37,000 per student borrower. It’s also common to see student debt climb to $100,000 or even $200,000 for some graduate degrees, especially when considering law or medical school.

Unfortunately, the delinquency rate continues to grow for student loans which is cause for concern, especially since student debt follows you for life and cannot be forgiven during bankruptcy. 

If you start missing payments the interest rate also spikes, so it becomes even more unaffordable, so this is why it is so important to minimize your student loan debts or not get any at all.

START EARLY

Start preparing in high school by getting good grades or working to save up some money. 

Taking college prep classes like AP can also be a great way to get college credit and boost your GPA to be more attractive to colleges and get scholarship money.

Another great option is to consider Dual Enrollment which means going to community college during high school to get your AA degree. The majority of times, these programs are free to students and can shave 2 years off your college years, which means less debt!

SCHOLARSHIPS

There are merit-based scholarships, financial aid, private scholarships, state grants, federal grants, and ROTC/military scholarships.

Make sure you consider all of these options and you apply to scholarships and grants as early as possible as many of these are first come first serve.

You can also find small private scholarships through your employer or parents’ employers as well.

SCHOOL CHOICE

Many people choose to go to a college based on more social considerations. My recommendation is to heavily consider the finances before deciding to go to a school because friends come and go, but college debt follows you forever.

Many smaller schools typically offer the same education as larger schools so be sure to look at their accreditations and weigh this into your decision.

If you still can’t afford these options, you can always go to a community college to get your degree or AA there and then transfer to another college for the last 2 years. This will cut down on costs greatly because the average tuition is much lesser than a state school.

Make sure you factor in additional costs like living expenses, meals, insurance, etc. when deciding on a school.

SPECIAL PROGRAMS

Do research to see if the colleges you’re interested in offer special programs or incentives that make the costs cheaper for certain majors or even offer accelerated programs.

See if the college you’re interested in also offers to CLEP classes so you can test out of them or even see if you can do summer classes at your local community college when back at home. This will greatly cut down on time at college and save you money!

WORK

See if you can work during college. You can find jobs online or on campus to start saving money and paying off your college expenses. 

You can also work during the summers as many businesses offer summer internship programs. This will also help your form relationships for potential full time offers after you graduate.

And those are my tips to graduate college debt-free!

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