Last Updated February 27, 2020
Do you feel overwhelmed and don’t know where to start with your financial freedom journey. You might have multiple financial goals that you want to achieve and ask yourself “Should I start saving money first? Or should I pay down debt? When should I be investing and saving for retirement?” I understand that it could be overwhelming at first. Find out the step-by-step plan to help you be financially free.
Step-By-Step Plan For Financial Freedom
For the most part, I think should you go in this exact order during your financial freedom journey.
The only exception is if I recommend you skip some steps because of your personal situation. If I recommend you skip some steps, for now, you should still plan to go back to those steps you skipped at a later time. So, let’s get started!
Step 1: Make A Budget
This is absolutely the most important and first thing you need to do. Having a budget is essential to your financial success. You don’t have to budget like I do, but you definitely need to have a spending plan. You can get started with this FREE Monthly Budget Printable.
If you have a budget, but you’re ready to take it to the next level, I recommend you use my Budget Templates.
It is the system I currently use when budgeting, and it has helped me save over 50% of my income. It is very detailed and will help you make sure no spending category gets forgotten about.
If you want to know step-by-step exactly how I use my household budget spreadsheet to manage my money you can read “How I Use My Monthly and Yearly Household Budget Spreadsheet.”
Related Article: How I Saved $300,000 In 4 Years
*NOTE: If you do not have any money left over after making your budget, skip down to Step 9 and Step 10 before continuing to Step 2.
Step 2: Calculate Your Net Worth
It is important to calculate your net worth because you need to know where you currently stand financially. How will you know if you’re making progress towards your financial goals if you don’t know where you’re starting?
Calculating your net worth is a simple formula—subtract your liabilities from your assets (what you OWN – what you OWE). Find out your net worth quickly and easily with this Net Worth Worksheet available in my FREE Resource Library.
Calculate your net worth now and recalculate it once or twice a year to check your progress.
Step 3: Set Financial Goals
At this point, you know where you stand with your money, and should be thinking about all the things you want to accomplish financially.
Is it paying off debt? Saving for a down payment on a home? Funding your children’s college fund? Saving for a car? Or maybe saving for retirement? It can be some or all these things.
Ask yourself “What are ALL the things I want to accomplish financially?” Then write down all of your financial goals.
Once you have all your goals listed in one place, allocate how long you think it will take you to accomplish these goals. Break them down into three different categories: long-term goals, mid-term goals, and short-term goals.
Break Down Financial Goals
A long-term goal takes 10 or more years to achieve. Some long-term goals may be saving for retirement, saving for your child’s college tuition, or paying off a mortgage.
A mid-term goal takes approximately 3-10 years to achieve. Some mid-term savings goals may be saving to buy a car, saving for a down payment on a house, or paying off your high-interest debt.
A short-term goal usually takes less than 2 years to achieve. Some examples of short-term goals are funding your emergency fund, paying down high-interest debt, or saving for a wedding or vacation.
Read “How To Save For Different Financial Goals” to learn the best strategies to save for your different financial goals. You can also use this FREE Daily Goal Planner to take daily action steps towards your goals.
If you want to achieve some of these financial goals faster, skip down to Step 9 and Step 10 before continuing to Step 4.
Step 4: Fully Fund Your Emergency Fund
Saving for an emergency should be one of your financial priorities. An emergency fund is money set aside to cover large unexpected expenses or to help you through hard financial times—like a job loss.
Preparing for the unexpected is necessary if you want to be financially free. You should have enough cash available to help you through emergencies without having to rely on high-interest loans.
Read “How To Build An Emergency Fund” if you need help figuring how much you need in your emergency fund and how to set it up.
If you already have an emergency fund in place, you can skip to Step 5.
Step 5: Pay Off High-Interest Debt
Once you have fully funded your emergency fund, I would focus on getting rid of any high-interest debt. I consider any debt with an interest rate above 8% to be “high interest.”
The reason why I would pay off any debt with an interest rate above 8% is because the stock market has returned about 8% over the long haul. Paying off a debt with an interest rate greater than 8% is equivalent to getting a guaranteed return of more than 8% on an investment.
Therefore, paying off your high-interest debt above 8% will most likely give you a better return on your money than investing.
You can use this Debt Worksheet available in my FREE Resource Library to help you organize your debt and prioritize your payment plan.
If you do not have any debt, or the debt you currently have is 8% or less, I would move on to Step 6. If you do have debt greater than 8%, continue to read to get tips on how to pay it off quickly.
Use Software To Help
If you’re like me, you like to use paper and software to help you with your financial journey. If you’re interested in using technology to help with your debt repayment plan check out Undebt.it. It is a FREE tool to help you get out of debt.n
I absolutely LOVE this website! There are SEVEN debt payoff plans you can choose from (including the debt avalanche and debt snowball method). You can even compare the different payoff plans to see which is best for you or make your own custom plan!
They also have debt payoff calculators which is also FREE. You can keep track of all your payments and your debt payoff progress in one place. This software is so AWESOME and absolutely FREE! I haven’t come across something this good in a while!
You can also sign up for the premium account that has more features for you to take advantage of. The premium account is $12 for the entire year (only $1/month), which is still very affordable.
There’s a 30-day FREE trial if you want to check out the premium account. What I would do is sign up for the free account first, and then click on the free trial to check out the premium features. If you like it, then sign up for the premium account.
Once you have a debt repayment plan, you can use an app like Tally. Tally is the world’s first automated debt manager that makes it easy to save money, manage your cards and pay down balances faster.
It’s absolutely free to download, and they don’t charge any fees to use the app.
The way Tally works is they monitor your balances, APRs, and due dates on each credit card you register. Tally’s smart technology will determine which cards to pay first, based on factors such as APRs and utilization.
In order to get the benefits of Tally, you will need to qualify for and get a Tally credit line. Depending on your credit history, your APR (which is the same as your interest rate) will be between 7.9% – 25.9% per year.
If you have cards with a lower APR than your Tally credit line, you can manage the payments to those cards yourself; or have Tally pay only minimum payments to those cards to make sure you won’t be charged late fees.
Related Article: How To Pay Debt Faster (Even If You Have No Money And A Low Income)
Speed Up Paying Off Your Debt
You can also use an app like Qoins to help you automatically pay off your debt even faster. You’ve likely heard of apps that turn your spare change into investments (like Acorns) but Qoins is an app that takes that change and uses it to pay off your debt.
Qoins will send out payments according to the schedule that you’ve set up. They also track how much you’ve paid out towards your loans and see how much of a dent you’ve put in your debt.
I highly recommend Qoins if you want to speed up paying off your debt, while making it as easy and painless as possible.
Step 6: Save For Retirement
I want to start this section off by saying anyone who is in a position to both payoff debt and fund their retirement plan should do so.
As the generation of baby boomers enters retirement, the payroll taxes that they’ve contributed to the system throughout their careers will turn to withdrawals in the form of retirement benefits.
The amount of money that has been set aside is not enough to cover the long-term expenses of baby boomers that will occur. As a result, it is estimated that social security will run out of money by 2034.
That’s just in time for people around my age to get ZERO when we decide to retire. Therefore, it is imperative that you save for your own retirement and not expect to rely on the government.
I love the Retirement Planning Calculator by Personal Capital. If you want to attain financial freedom, you should definitely use this tool to map out your financial future.
You can upload all of your retirement accounts so you can see it, and manage your finances all in one place. Check-in regularly to see how your progress is going—and it’s FREE!
Take Advantage Of Your Employer Match
Saving for retirement is extremely important and you want to start saving as soon as possible. Regardless of your debt, you should contribute the maximum amount your employer match to your 401(k) or similar plan.
For example, if your employer will match 50% of your contributions up to 6% of your pay (meaning a maximum matching employer contribution of three percent of your salary)—which is a typical arrangement—then you should contribute 6% to max out the employer match.
That means if you have a salary of $50,000, you will need to contribute $3,000 (6%) to get your employer’s maximum contribution of $1,500 (3%).
I believe even those who are struggling financially, can pay off debt and save for retirement—but you have to do so while prioritizing one over the other.
For example, let’s say that you’re carrying a large amount of debt. If you’re struggling to make the payments, then you will need to prioritize paying these off.
But that doesn’t mean that you have to abandon making retirement contributions altogether. You can continue to contribute to your retirement, but do so at some minimal level.
Take Advantage Of The Power Of Compounding
The reason why you want to start saving for retirement as soon as possible is the sooner you begin saving, the more time your money has to grow and compound.
Compounding is a powerful wealth-building tool because your interest gains interest.
For example, say you have $1,000 invested that gains 10% interest. At the end of the year, you will earn $100 in interest and have a total of $1,100.
If you don’t touch that money and allow your interest to compound, you will earn 10% on $1,100 (not $1,000); therefore, at the end of year two, you will earn $110 in interest.
Let me give you another example to show you the power of compound interest. Assume at the age of 35 you invest $1,000 that gives you an 8% return annually. To make the math easier, also assume you don’t add any more money to this account.
When you are ready to withdraw from this account during your retirement years, let’s say at the age of 65, your $1,000 will be worth $10,063. However, if you made the same deposit at the age of 25, and withdrew the money at 65, your $1,000 will be worth $21,725!!
You would make more than DOUBLE the amount just by investing 10 years earlier.
If you find you don’t have ANY money to contribute to your retirement while paying down debt, I would skip down to Step 9 and Step 10 before moving on to Step 7.
Step 7. Figure Out Your Investment Strategy
Once you have paid off your high-interest debt and started saving for retirement, you should be focusing on investing.
You cannot only save your way to financial freedom because that would take forever. You have to invest your money.
There are so many ways you can invest your money. Some ways include investing in stocks, bonds, real estate, and/or a business. You want to invest in things that produce income and increase in value.
I like to invest in real estate and the stock market because in the long term it will increase in value over time. It can also produce an income through cash flow and dividend payments.
Investing in real estate and the stock market has helped me achieve financial freedom more quickly than if I were to just save money.
I personally use Robinhood.com to purchase individual stocks. I like this website and app because you can buy and sell stocks for free—there are no commissions or fees. Most other brokerage firms charge at least a $4.95 fee per trade, and some have hidden fees.
Sign up today and you and I can get a free stock like Apple, Ford, or Sprint. With Robinhood you also don’t need a minimum account balance, so you can get started right away.
Related Article: Best Ways To Start Investing For Beginners: Investing 101
Step 8: Protect Your Financial Future
You worked hard to get to this step, and you need to protect your assets. Disasters can happen to anyone, even at no fault of your own.
Your car or home can be damaged, someone sues you, a family member gets sick, you become disabled, or someone dies. In events such as this, you want to make sure you have enough insurance to protect you and your family.
You don’t want one of these disasters to be the reason you can’t achieve financial freedom, or you lose the financial empire you’ve built.
Make sure you have ample medical, disability, life, home/rental, and auto insurance. The Chief Mom Officer wrote an excellent article that goes over the different types of insurance you need.
Have A Will And General Power Of Attorney
Finally, you need a Will and a general power of attorney.
You may think, “Do I need a Will if I have no assets?” The answer is “yes!” A will does more than distribute your assets. It can have other functions such as assigning guardianship to minors.
Even if you have no assets now, suppose you die in a car accident caused by a drunk driver, your estate may have a wrongful death suit that awards them millions of dollars. This will be divvied up by the state if there’s no will.
When someone dies intestate — without a legal will — the estate goes into probate, a judicial proceeding that decides the rightful heirs and the distribution of assets.
Going through probate can eat up more money than the cost of creating a will, or offer a less-than-perfect split of assets. Splitting things equally among family members may not be fair in some cases.
A power of attorney is a legal document that designates another person to act on your behalf to make decisions. A power of attorney is useful if you are not able to act on your own behalf due to mental or physical incapacity.
The person you designate (your agent) may be called upon to make financial decisions to ensure your well-being and care. These may include paying bills or selling assets to pay for medical expenses.
You can detail the scope and extent of what you wish your agent to do in the power of attorney.
These Bonus Steps are not a MUST for some people, but it will definitely speed up and supercharge everyone’s path to financial freedom.
I recommend implementing these next two steps if you want to achieve financial freedom faster or you find you don’t have money left over to save and invest.
Step 9: Find Ways To Cut Expenses
You need to embrace frugality in order to achieve financial freedom quickly. Cutting expenses is important because the less you spend, the less money you will need overall to achieve financial freedom.
An additional benefit to spending less money is you can save more. The more you save, the faster you can achieve your financial goals.
A lot of financial experts would recommend you review your budget and eliminate all small unnecessary expenditures; however, I think you need to first focus on cutting larger expenditures.
The reasoning is since most of our money goes towards the larger budget categories—such as housing, transportation, and food—those are the areas where you can make the biggest impact and recapture the most dollars.
Keep in mind, I’m not saying you should not focus on the smaller categories at all, I’m just saying I would focus on cutting my expenses in my high spending categories before I turn to cutting my small expenditures.
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My favorite cashback app is Drop. Drop is the free app that’s giving out millions in cash rewards for the spending you do every day. So if you like to shop on your cell phone, you definitely should download the Drop app.
Related Article: Cutting Your Monthly Expenses: Why It Is Absolutely Necessary
Step 10: Work On Building Other Streams Of Income
To be truly financially free, you need to build multiple streams of income.
This is important for several reasons. First, it creates diversity and protects you if one stream of income “dries up.”
Second, the more streams of income you have the more money you make; the more money you make the faster you can become financially free.
You can build other streams of income by getting a part-time job, starting a side hustle or part-time business, or have investments that give you passive income.
If you’re looking for some ways to increase your income or build other streams of income read my detailed article “5 Ways To Increase Your Income.”
To become financially free, you first need to create a budget and calculate your net worth. Next, set some financial goals, and focus on fully fund your emergency fund and paying off any high-interest debt. Finally, make sure you’re save for retirement, investing, and protect your financial future.
As an added bonus to achieve financial freedom faster, try to embrace frugality and work on adding other streams of income. If you follow these tips, you will be well on your way to financial freedom.
I know this was a lot to take in, so download your FREE Financial Freedom Checklist where I outline all of these steps for you! I specifically designed this checklist with you in mind to simplify your steps to financial freedom. It will keep you organized as you start and progress through your financial freedom journey.
There’s nothing more motivating than checking each box off as you make progress. Keep this list as a daily reminder of what you need to do to become financially free.
Now that you know what you have to do, print the checklist and take action today!
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