Think the keys to financial freedom are beyond your reach?
Do you and your family struggle to get ahead financially?
Does financial success seem elusive or just something only an elite few can obtain?
Perhaps your family just struggles to pay the bills each month and put food on the table?
If you’re living Paycheck to Paycheck, the keys to financial freedom might not even be on the radar; you’re just trying to stay above water.
The keys to financial freedom are NOT beyond your reach.
You and your family CAN live your dreams. Even if you’re over 40 and way behind on planning for your future, it’s not too late.
In this post, we’re diving in deep on how to get ahead financially.
But we’re not just talking dry numbers and things like spend less and earn more. No, we’re putting some emotion behind it and getting you to really focus on the long-term goals that are important to you and your family.
Specifically, we’re looking at the keys to financial freedom that will allow you to live your dreams!
What do you and your family dream of?
As we anything in life that is challenging to accomplish, we just have to:
- Acknowledge where we are on the journey to financial success (hiding our head in the sand doesn’t help anyone)
- Know where we want to be (you’ll never hit your goal if you don’t first define it)
- Break down the path to get to your goal into small steps (baby steps make it less overwhelming)
But before we talk about the keys to financial freedom and how to achieve them, I want you to answer a question.
What do you and your family dream of? Where would you like to be in 5-10 years? The answers will vary and your dreams might be totally different than mine.
My 5-year dreams include:
- Continuing to have no debt other than our mortgage
- No longer working a job where I trade time for money (I want the flexibility to work when, where and how I want to and to be paid for providing solutions; not just clocking in for a set time no matter how much or little I produce in that time)
- Being able to travel more (and being able to work while traveling as needed)
- Ramp up retirement savings
- Get an RV
- Move to a more rural house with a lot of land
My wife, on the other hand, wants to finish her degree. She’ll do that while our newest child (coming later in 2017) is in her pre-k years. Then my wife can get back to teaching once Layla enters kindergarten.
Your family’s dreams might be totally different from that. That’s totally OK. In fact, I WANT you to have your own dreams and goals. I want you to picture your dreams.
What do your dreams look like?
If you don’t know Chris Hogan, he’s Dave Ramsey’s retirement expert and he’s big on visualizing dreams.
As Chris says, “Dreams give you direction. Dreams give you focus. They give your life purpose and intention.” Granted seeing those words on paper is not nearly as dramatic as hearing Chris say them.
Check out his podcast Retire Inspired if you haven’t already, and you’ll hear what I mean.
Or give a listen to Chris right here.
Sit down with your spouse and kids and talk about your dreams
Write them down. See where everyone comes together and where everyone differs. Focus on the common ground. Maybe even set time frames in which you want to achieve these goals. Then break each one down into small, achievable steps and get about the business of making them happen!
What are the keys to financial freedom?
As with dreams, financial freedom might mean different things to different people. It could mean any or all of the following:
- Getting out of debt
- Paying off the house
- Saving a large nest egg for retirement
- Saving for your kid’s college fund
- Buying a bigger house
- Buying a nicer car
- Traveling in retirement
All of those and many more are the keys to financial freedom.
Because I have posted on some of those topics before, you’ll notice I’ve linked to them in the list. If you need help in any of those areas, I highly encourage you to check those posts out if you haven’t already.
Wagner’s rules of financial planning success. If you’re uncertain when #3 applies, call your financial planner! pic.twitter.com/84U25PLOV7
— MichaelKitces (@MichaelKitces) June 18, 2017
Financial freedom is simply a stage in your life where you are, as Dave Ramsey says, “winning with money”.
You will be in a place where money and money problems are no longer a concern. They will no longer be a source of friction between you and your spouse.
That’s not to say you won’t have to work to stay ahead in the game, as anything worth doing requires continued effort and focus. But it will no longer constrain you and your family or keep you up at night.
Again going back to quote Dave Ramsey, you’ll be “able to live and give like no one else”.
Is debt choking the life out of your financial freedom?
Many people across the globe are struggling with massive debt!
According to Fortune Magazine, the average US credit card debt is over $16,000! We’re also now at the highest level of personal debt since the meltdown in 2008; topping 1 trillion dollars!
Clearly, we should have heeded Shakespeare’s famous words “Neither a borrower nor a lender be”.
— Jon Snodgrass (@JonS_Accunet) June 9, 2017
Thus it should not be a surprise to anyone that being in debt is NOT one of the keys to financial freedom!
When you are giving hundreds of dollars each month, both to repay debt and also to cover interest payments, that’s money that ISN’T going to your financial future.
Think of it this way. Every dollar given to credit cards, student loans, car payments or home equity loans is a dollar you could be investing in mutual funds. Investing in your future instead of making bankers wealthy!
How can I gain financial freedom?
In addition to the $16,000 in credit cards, according to The Federal Reserve, the average American household also holds:
- $176,000 in mortgage debt
- $29,000 in car loans
- $50,000 in student loans
That’s a serious lock down on your financial freedom!
Putting aside the mortgage for the moment, let’s look at the remaining $95,000. I know interest rates vary, but let’s say it takes the average family 10 years to pay off that balance at 8% interest.
Of course, that’s also assuming they don’t KEEP borrowing money. But for now, let’s work with those figures.
Using a calculator courtesy of Bankrate.com, you can see that the $95,000 you borrowed will actually cost you almost $106,000.
So not even thinking about what you could do with $106,000, let’s just look at the interest you paid.
That $11,000 in interest you paid, had you simply invested it in mutual funds over that 10 year period, earning an average of 10%, would have earned a total of $28,500.
Those figures courtesy of a compound interest calculator courtesy of MoneyChimp.
So instead of paying $11,000 in interest payments, you could have earned almost $30,000! And that’s with no actual retirement or savings planning or making any additional contributions to the mutual funds! Imagine what could happen if you were debt free and intentionally planning for retirement??
How to get ahead financially when you are barely treading water?
Always behind on your bills? Constantly trading which bill to pay late so the same debt collector isn’t always calling?
When you’re in that boat it can be hard to think about the keys to financial freedom.
Financial success won’t even be a blip on the radar if you’re not sure how to make it through the day, month and year.
If that’s the boat you’re in (been there, done that!) we need to get some stability first before we start talking about your grand tomorrow. The good news is with some focus and intentionality you can get there!
When you Can’t Pay Your Bills, there are some crucial steps you can take to get ahead. Once you’re afloat, then you can get back to the business of living your dreams!
Expert says Canadians are just ‘treading water,’ even though delinquency rates have declined https://t.co/SCpb3qAJw1
— JennoChand (@JennoChand) June 9, 2017
First, we need to understand that money problems are simply a combination of 3 things:
- Not having our finances organized (if we aren’t clear on where we are, it’s hard to get anywhere else)
- An income problem
- An expense problem
The first one simply means we need to get clear. We need to know exactly what our bills are, how much we owe and when we need to pay those things.
The best way to get organized is to have a monthly household budget. Think of your budget as your roadmap. I can’t get to Timbuktu without a map (or at least GPS) and you can’t get to your financial success without a budget.
Since I’ve already covered how to make a budget extensively in the linked post in the previous paragraph I don’t want to repeat myself. But if you aren’t on a written budget yet I highly recommend you check that post out as I walk you step by step in creating your family’s budget.
Trust me; this is one of the most crucial keys to financial freedom!
The budget is something you do monthly before the month begins. You also need to be on the same page with your spouse. But it’s OK if one of you is more the math or Excel nerd than the other. You start at the top knowing your probable income for the coming month. Then you simply subtract all the known bills for that same month.
Any extra dollars at the bottom of the page would get allocated to:
- Paying off debt
- Going towards retirement funds
- Saving for kid’s college
- Going into short or long-term savings accounts
- Going into a Christmas Savings Account
While my budget post does walk you through the steps to make a budget, you need a way to do it. If you aren’t sure how to craft a budget, I have a free Excel budget spreadsheet you can download right now.
It’s the very same budget spreadsheet my family used to pay off over $80,000!
If you have an income problem then it’s time to look at a career change, taking on a 2nd job and/or looking at some additional training or schooling that can boost your earning potential.
And expense problems will go away once you start doing a budget each month. Unless you’re in Congress, it simply doesn’t work to spend more than you make, and the budget will show you where you stand in an instant!
So what are my . . .
11 Proven Keys to Financial Freedom & Living Your Dreams?
1. DEFINE WHAT FINANCIAL SUCCESS MEANS TO YOU AND YOUR FAMILY
You need to know your financial goals. Be specific. Where applicable, set realistic deadlines for achieving those goals. Measure your progress and adapt as things change.
2. MAP OUT YOUR DREAMS
The keys to financial freedom are logical. But to really get passionate and fired up, we need to tap into the emotional. That’s where dreams come in. Dream big. Make those dreams in color!
What do you and your family most want to do? How does your life look in 5 or 10 years? If you can dream it, you can see it. When we can see it, we can define it. When you do that, you can get there!
3. BABY STEP TO GET WHERE YOU WANT TO GO
Any goal can seem huge, lofty and insurmountable if it’s a long way from where you are now. You know what happens when goals seem insurmountable?
We lose focus and they fall by the wayside. To stay motivated, break your goals down into small, achievable baby steps.
You might not be able to go from making $50,000/year to $200,000/year in 6 months. But I bet you could add $1,200/month by delivering pizzas at night. That one small step takes you to almost $65,000/year. Imagine what other small steps you could take?
4. USE A HOUSEHOLD BUDGET EACH MONTH
As I said above, you can’t get anywhere that’s unfamiliar without a road-map.
Your budget IS the biggest of the keys to financial freedom. Do a written (online counts too) budget each month before the month begins. Do it EVERY month.
Include your spouse so that they feel a part of the conversation; they are your equal, not your kid. Make every dollar go exactly where you want it to go. Be intentional.
5. SPEND LESS THAN YOU EARN
This ain’t rocket science, folks.
Granted when we see governments routinely spending way more than the revenue they take in, it sends the wrong message. Spend less than you make. Save what you don’t spend. Do that every month and you’ll be set for life!
6. GET OUT OF DEBT
If you have debt other than your primary mortgage that money you’re paying the bank or credit card companies is money that could be working for you!
If you have debt, have a plan to pay it off. Do that before you start saving for retirement or kid’s college. That way every dollar you have extra can go right towards the debt.
Our family got out of debt following Dave Ramsey’s Debt Snowball plan. But however you do it, your financial success depends on it!
7. SAVE FOR RETIREMENT
Once you’re out of debt except for the house it’s time to set aside money for retirement. Ideally, save 15% each month of your gross income. Do it in a 401k if your company offers one (a Roth 401k is even better).
But even if your employer doesn’t offer one, open up a Roth IRA and put it into mutual funds each and every month. I linked above to my post on retirement basics, so start there if you’re not sure what to do.
8. ALSO, SAVE FOR YOUR KID’S COLLEGE
As with retirement, once you’re out of debt, if you have kids you should be saving for their college. That way you aren’t saddling them or yourselves with massive debt when they head off to college.
According to CollegeData.com, the average 4-year degree (factoring in books, housing & other expenses) costs anywhere from $100,000 to $200,000.
Many exit college making only $50,000/year (according to Time Magazine). Does that math make sense to you?
9. HAVE A PLAN FOR ANNUAL EXPENSES LIKE VACATIONS AND CHRISTMAS
Vacations and Christmas spending are known entities. They don’t happen randomly. Thus like any other expense you need to anticipate and plan for these things. That way you’re not surprised, strapped or reaching for the credit card.
Plan for these things in advance. Figure out how much you need. Divide that by how many months you have before the spending starts. Put that amount aside each month leading up to it.
Trust me; those presents or that vacation will be a whole lot more fun if you aren’t stressing about the bills that are coming in the mail afterward!
10. DON’T BUY MORE HOUSE OR CAR THAN YOU CAN AFFORD
If your household income is well under $100,000/year you should not be buying a house that costs $389,000! I use those exact figures because that’s exactly what my wife and I did in 2006. Your house payment should be about 25% of your monthly take-home pay. That payment should include taxes and insurance.
Thus if your family brings home $5,000/month, you should be buying a house somewhere in the $160,000 range.
Cars are even worse as, unlike homes, they go down in value. NEVER buy a new car. Buy a gently used late model car where someone else has taken the 11% loss in value the moment it was driven off the lot. Save up and pay cash for the car.
There’s nothing worse than a car payment on a car you can’t afford where you actually owe more on it than it’s actually worth.
All vehicles in your house combined should not have a total value greater than 50% of the annual household gross income. In other words, if your family makes $100,000/year, don’t own more than $50,000 (purchase price) in cars. Another of the keys to financial freedom!
11. IT’S OK TO MAKE MISTAKES!
You will mess up.
There will be months where you buy something you shouldn’t have. Maybe you and your spouse don’t agree on something and you do it anyway. Own it, apologize for it, fix it. But don’t dwell on it or let it derail your long-term goals.
We are human beings. Guess what?
We aren’t perfect. Mistakes are how we learn. The trick is simply to not keep making the same mistakes over and over again expecting different results. Own the mistake. Take responsibility for it and then get back to focusing on your dreams and the keys to financial freedom!
Did I cover all the keys to financial freedom you were hoping for?
In this post, I took a hard look at the long-term strategies needed for financial success.
But instead of just talking about budgeting or planning (which we do get into), we talked a lot about your dreams and goals and focusing on those can help transform your financial life by putting emotions, heart, and soul into your planning and motivation.
Specifically, we talked about the keys to financial freedom so you can live your dreams!
The app Trim automatically looks at your monthly bills & spending and then cross-checks that with savings programs almost all vendors have. It’s a great way to save a few extra bucks to go towards your dreams!
When they match up, you save. They’ll even handle the hassle of canceling memberships you no longer want or renegotiate bills for you like insurance and cable bills.
Just sign up and spend on your Visa card and earn automatic savings back on your statement!
What are your dreams and what are you doing to make them come true?
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While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinons based on my own experience, observations, research and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.