Top 7 Steps for financial freedom

Achieving financial freedom is the dream of many and reality of some. However, to reach your goal the only you need is to have a plan and stick to it. Reaching financial freedom looks harder that it really is but If you work hard and focus you will find it.

1. Define your “Financial Freedom”

Before start looking for ways to achieve finical freedom is important to defined first. Financial freedom can be defined as the ability to take life decisions without being stressed about the financial impact. This means that you are in control of your finances a not being controlled by them. However, this is just a generic concept. In reality, financial freedom has different meaning for each individual. Financial freedom for you would be way different from others. For some financial freedom could be being mortgage free, for other is get a well-paid job on a career they love or have a 5 million dollar net worth. could be the freedom to quit you job to do something you love, even if means getting paid less.

For this reason, is important to define yours. Once you know what financial freedom mean to you, you can start creating a plan to achieve.

2. Budget

Budgeting is like the foundation of a building or the roots of a tree. A three with weak roots and a building with weak foundation cannot stand against the storm. Same happen with our personal finance, an individual without a budget sooner or later would become part of the statistics and would be trap on living paycheck to paycheck.

Correspondingly, no matter how much people make, people are struggling to get to the end of the month. Today more than ever is easier to spend money. Subscriptions, buying online, deliveries, etc have made easier for people to spend money and for companies to sell products and services. In fact, a recent report from CareerBuilder shows that 78% of full time workers are living paycheck to paycheck. not only are living paycheck to paycheck but also 71% said they are in debt.

After all, have in mind that good moments no last forever, in any moment something unexpected can happen: lose Job, got an accident or get a disease.

For this reason is why I establish a rule in my life in which I set my expenses at the level of the most basic wage I am guaranteed I can make. As result I set my budget as the wage of an Uber Driver. In any event I know if I lose my job I can set the Uber app and cover my expenses without the need to use my savings, investments or singing into debt. After all, no matter how much money I am making now. I know my living cost can be cover if I were working as Uber driver.

How to do a budget:

List and prioritize expenses

The best way to start a bugged is to list all your monthly bills. Once you have all your monthly expenses written down you will need to order them by priority. In this case, your top priorities will be food and roof because you can no live without both. In other words, for educational purpose assume you came that this is your budget after ordering by priority.

Expenses	Initial Budget	Debt free Budget plan	No debt budget	Mortgage free budged
Rent or mortgage	1100	1100	1100	0
Food	400	350	350	350
Power	90	80	80	80
Water	55	55	55	55
Car loan #1	420	420	0	0
Car loan #2	215	215	0	0
Car Insurance	250	200	200	200
Gas	80	80	80	80
Credit card #1	25	25	0	0
Credit Card #2	25	25	0	0
Phone	120	90	90	90
Tolls	50	30	30	30
Internet	80	45	45	45
Saving	100	100	100	100
Investment	100	0	100	100
Cable	70	0	0	0
Subscriptions	100	0	50	100
Entertainment	200	50	200	300
Vacation	100	0	100	200
Total:	$3,480	$2,865	2,580	$1,730

Cut and reduce expenses:

Then equally important you will need to evaluate your expenses. Consider cut and decrease as much as you can of those are not priorities to you at this moment such as cable, vacations etc.

Next, the best way to achieve financial freedom and be able to live with low budget that can be covered as an Uber driver is taking care of all debt first. With this in mind, you should use all that money that you are saving from the expenses you cut to pay debt faster.

So, continuing with this example, you will need to cut cable, all subscriptions (Netflix, Amazon prime, Spotify, Etc.). You will also need to try to reduce your car insurance, phone bill (reduce plan), look for other internet suppliers that provide cheaper internet service, try to use no tolls routes, cut eating in restaurants, no vacations until debt is paid.

Use extra money to pay debt

As you can see on the chart if you are able to cut and reduce some of your expenses you can be saving a lot of money each month. See how budget was reduced $615 just by cutting and reducing some expenses. How faster you think you can paid your debt with and extra $615 each month?

I know it will be hard, but you will know it was worth it when you feel how is to be debt free and have all that extra money to generate wealth.

3. Pay debt

Debt is like an anchor that hold you back from creating wealth. In order to start investing and creating wealth you must pay all your debt first. To achieve this is important to create a plan. In general, there is two popular methods you can use to get out of debt faster. First is by using the debt snowball plan promoted by Dave Ramsey.

Debt Snowball

This first method consists in paid your debt balances from the lower to highest. Start paying the small one first regarding the interest rate. Make minimum payments on all your balances except for the smaller one, in which you should be paying extra money to pay it faster. After you finish paying a balance you would add the monthly amount you were paying to that balance and added to the payment of the next one. Keep doing that until all debt balances are paid.

Avalanche

On the other hand, the second method called Avalanche is similar to the debt snowball. But instead of order your debt balances from lower to highest, you will order highest to lower from their interest rate. Then, similar to the debt snowball method make minimum payments on all your balances except for the one with highest rate.

Debt Snowball Vs Avalanche

To put in other way, lets run an example with both methods and one if you were just paying the minimum balance on each account. Then, explain benefits and downsides of each one.

Let’s say you owe two credit cards, two car loans and a student loan. After doing your budget you came with a total monthly $1,500 you can allocate to pay all this debt.

Accounts	Balance	APR	Minimum Payment
Credit Card #1	$2,000	15%	25
Credit Card #2	$5,000	18%	35
Car Loan #1	$21,000	11%	380
Car Loan #2	$12,000	3%	210
Student Loan	$43,000	5.5%	430

According to debt snowball plan method this will be the order you should start to attack your debt:

Accounts	Starting Balance	Time to paid OFF	Total interest paid	Minimum payment	Average Payment
C. C. #1	$2,000	4 Months	$54	25	$640
C. C. #2	$5,000	11 Months	$585	35	$465
Car Loan #2	$12,000	22 Months	$461	210	$542
Car Loan #1	$21,000	36 Months	$4,984	380	$722
Student Loan	$43,000	55 Months	$8,109	430	$897
Total:	$83,000	55 Moths	$14,191	1080	$1,710

On the other hand, with debt Avalanche:

Accounts	Starting Balance	Time to paid OFF	Total interest paid	Minimum payment	Average Payment
Credit card #2	$5,000	8 Months	$345	$35	$594
Credit card #1	$2,000	11 Months	$250	$25	$188
Car Loan #2	$21,000	29 Months	$3,823	$380	$677
Student Loan	$43,000	54 Months	$7,633	$430	$904
Car Loan #1	$12,000	55 Months	$1,866	$210	$243
Total:	$83,000	55 Months	13,915	$1080	$1,710

Comparison table

Accounts	Time to paid off (Snow Ball)	Time to paid off (Avalanche)	Total interest paid (Snow Ball)	Total interest paid (Avalanche)
Credit card #1	4 Months	11 Months	$54	$250
Credit card #2	11 Months	8 Months	$585	$345
Car loan #1	29 Months	55 Months	$4,984	$1,866
Car loan #2	36 Months	29 Months	$461	$3,823
Student Loan	55 Months	55 Months	$8,109	$7,633
Total:	55 Months	55 Months	$14,191	13,915

4. Emergency fund

As mentioned good times no last forever, and you need to have an emergency fund in which relay in any emergency. There is no such thing as granted job, anyone can lose a job and you don’t know how long it will take you to find another one. Could be days or months but is important to be prepare for the worst and be cover for at least 3 months of expenses.

5. Invest. Set your life for a bright future

When planning to invest, is important to consider very carefully each option. Since each one provides different benefits and risks. Here are six types of investments you might consider for long-term growth, and what you should know about each.

Retirement:

One of the easiest way to start investing is by taking advantage of a company 401K. most companies provide the opportunity to invest and they will match your contribution dollar by dollar between 0 % to 6%. If you are self-employed you can use an Roth IRA instead..

Bitcoin and Cryptocurrencies:

Stocks:

Bonds:

Investment funds:

6. Passive income (Increase Cash Flow)

To achieve your goals, you will need to consider increasing your cash flow through passive income. There is plenty of ways you can generate passive income but have in mind that passive income in not a formula to get rich fast. There is some exception to the rule and there are some who made millions in couple years. Hopefully you will be one of the selected few. But for most people passive income will be a slow but steady growth over time.

Passive income is the cash flow you can generate in a way that requires little to no daily effort to maintain. There are different ways to generate passive income, some require capital and other requires time to get start running.

Passive income ideas:

Dividend stocks:

This type of investment is one of the easiest ways to start generating passive income, since the only requirement is the initial capital necessary to buy the stock. Capital required to own a dividend-yielding stock share may vary from a couple dollars to thousands of dollars and its yield can vary between 1% up to 9%.

Blog / YouTube channel:

Starting a blog or a YouTube channel is a great way to generate passive income while sharing a topic you like. What would be better than start a blog on a topic you love and generate cash flow from it. Or start a YouTube channel on where you could share your knowledge or experience and profit from it. If your content engages with users and generate enough traffic the possibilities of generates large amounts of passive income are huge!

There is a lot of ways to generate passive income from a blog or a YouTube Channel.

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Affiliate links
Selling products or services
Courses
Others

Real Estate:

Rental property can be a great source of passive income, but it requires large capital, time and effort into managing the property. Buying a property as a business not only can generate cash flow also you can benefit from tax cuts.

Crypto staking:

Similar to dividends stocks the only requirements to start generating passive income by staking cryptocurrencies is to hold the token. Most proof of stake cryptocurrencies projects offer the possibility to stake tokens. Staking is a transaction validation method that reward tokens holders with the native token or gas that can be trade for bitcoin or fiat currencies.

However, risk is something to consider when taking this path to generate passive income. While cryptocurrencies are a highly volatile asset that provide a huge potential, at the same time it involves a lot of risks especially when you are inventing in small crypto projects. For this reason, is important to do a considerable amount of research before investing on this amazing technology.

Rent items:

Do you own something that someone else would like to use? Now with the help of technology renting items is easier than ever. You can rent a room from Airbnb, or your car at Turo in just a few minutes. The only requirement is to have something that someone else need for a short period of time and you can start making money from it.

7. Enjoy life and continue learning.

What would be to reach financial freedom without enjoy life. Most time people are more focus on achieving results than enjoying the path. However, they don’t realize that the journey matter more than the destination. Furthermore, people often success because they were doing what they love and not what they think it would make them rich. We spend more time in the journey so start enjoying it.