In this article, we’ll be going through how you can get in control of your finances, and really set yourself up financially for the rest of your life. Most people are busy trying to achieve their new year’s resolutions and sorting out their finances, trying to materialize their goals.
I thought that I would chime in and go through my full seven-step way of getting on top of your finances, and setting yourself up for your financial future. If you think that you will really benefit from actually reading this detailed step-by-step process on how to get on top of your financial situation, or maybe you just heard from somebody that they’re looking to be better with their finances this year, make sure to share this article with them. Be that guy that helps them out send them this article, and let’s get as many people seeing this as possible. Let’s get people really focusing on their financial position.
Let’s get started.
How To Achieve Financial Freedom
Step one in this whole process of getting on top of your finances is
1. Realizing Where Your Money Is Going IN And OUT
This really surprises me but it’s true, a lot of people don’t even look at their bank accounts. They don’t even open it up, they just get confused when they start tapping, and all of a sudden there are no funds left.
The process is really about understanding where your money is going and understanding your cash flow situation. The step is literally opening up your bank account and just having a look at where your money is going, what sort of money are you spending on gifts, what sort of money are you spending on food, what sort of money you’re spending on entertainment, where’s your money coming in from, your different paychecks if you have a couple of different jobs.
You just gotta take the time and do this, get a few month’s worths of data and tally it up. Actually, have a look at how much money you are spending here and there, how much money is coming in, how much money is going out, and look over a couple of months. A couple of weeks just won’t give you a good enough idea.
The most basic way of understanding how to save money is to make sure that your cash flowing in exceeds your cash flowing out.
So take time to actually go through and have a look at where your money is going.
Once you go through step one and identify where your money is actually going, step two is to
2. Identify Areas Where You Can Tighten The Belt
A lot of people think that to get their financial life in order they simply just have to go out and earn more money, but that’s really totally not the case. For example, if you can save an extra $50 to $100 dollars a month, then that’s just as good as earning an extra $50 to $100 dollars a month.
The moment you do understand your cash flow situation from step one, identify those areas where you could potentially save money, and what categories are you spending too much money on. For me, I know that I buy lunch too often, so I’m going to make a conscious effort to cook my launch often because that’s going to save me heaps of money. For you it might be totally different, I don’t know what it might be like. Occasionally you go out and have a really big night out in the town with your friends, well maybe if you just substitute one of those nights per month, and instead, you just invite your friends around and maybe just play some board games, or watch a movie or something, you can save yourself fifty to a hundred dollars just by doing that once a month.
That’s step number two, identify areas where you can tighten the belt and actually save some money. Once you do have an understanding of your cash flows, and once you do have an understanding of ways that you can tighten the belt, the next step number three is to actually,
3. List Out All Of The Debts That You Have
This includes listing out all of the monthly or yearly subscriptions that you have signed up for. And trust me, this step can save you a truckload of money. The first part of this step is identifying all the debts that you have, so if you maybe have spent too much over the Christmas or any holiday period buying gifts, it might be that you have a credit card debt.
Now a credit card debt is what we will call a high-interest debt, a low-interest debt might be something like a mortgage, or something like a HECS debt, very very low-interest rate. Well in HECS, that’s different beasts altogether that’s just indexed to inflation.
Anyway, we talked about high-interest debt right, and credit card is the classic example of high-interest debt, for example, if you get stuck in credit card debt, some credit cards can charge up to an interest rate of up to 15% to 20%, some of the best stock market investors in the world can’t even average a 15% or 20% return every year. And these are guys that are compounding their money into more money.
So instantly, if you can really work hard on paying down that high-interest debt, you’re not going to be going backward at that rate, which is effectively like earning that amount of money back.
So step number one out of this step is to definitely have a look at high-interest debt and get on top of it focus your energies, focus your money on paying down your high-interest debt. And then after you’ve done that, have a look at the monthly subscriptions to different things that you’ve got. You know what I’m talking about like Netflix, Apple Music, Spotify, etc. Just go through and list all of them you know Xbox, Playstation, online programs, gym memberships, just list down all of the monthly subscription things.
It is such a common business model for businesses to incorporate now because it’s just so lucrative for them. People sign up and they never ever quit, so it’s a massive thing. List out all those subscriptions that you’ve got, and then actually really evaluate whether or not you are still using that service to its potential, or is there potentially one that you can cut out. For example, if you’re paying for Netflix and Stan, could you just cut one of them out.
Are you watching any TV at the moment, do you have the time, could you cut both of them out, are you still really using Spotify all that much, could you maybe cut that out are you still going to the gym, or are you finding that you would rather run in the park? Cut out those unnecessary membership things, those monthly subscription things because that can really for example if you just cut out to 20 monthly subscriptions, say overall that’s still going to save you close to $500 in one year. That’s absolutely ridiculous.
List them out and just chop the ones that you really don’t need. Be ruthless, if you’re not using it cut it.
So the first three steps we’ve been through are very much about stopping yourself from going backward, cutting down debts, getting rid of those subscriptions, all that sort of stuff. Understanding where your money goes and tightening the belt, that kind of stops you from going backward.
Now the next few steps are to help you start going forwards, and the first step that everyone should look to do in this kind of area is To,
4. Build up an emergency fund of money
This is money that ideally never gets touched. Personally, the way I like to do this is, I like to have an emergency fund of money that can cover three months’ worth of expenses, so if I lost all of my income, I know that I could go to that emergency fund if I need it, and I would be okay for about three months. It’s kind of like your cushion.
If you’re falling, you want that cushion to be there. Hopefully, you’re never in that situation where you are falling out of the sky financially, but in the rare instance that you do find yourself in that situation, you want that cushion to land on.
Ideally, we save up as let’s say three months’ worth of expenses. This number can be totally up to you, maybe you want to go for six months, or a year’s worth of expenses, but save that up and then try and never touch it. It is really worth making a separate bank account for this, so you can just see it sitting there by itself, and then just don’t touch it.
Not touching that money in your emergency fund will actually feel really good. Having that money saved up and sitting there for an emergency, and you’re just not touching it, it’ll actually feel really good, and it really takes your mind away from stressing about money. The reason is, you know if everything goes to hell, you’ve still got that cash sitting there if you need it, but ideally, you never touch it.
That’s the emergency fund, once you have that emergency fund set and you’re good to go, then the next thing you want to start to do is to really
5. Boost Up just your Ordinary Savings Account
You want to try and funnel as much money as possible into that savings account. You want to be sitting in a really high level of cash, you want to have lots and lots of savings. So try really hard in any way, shape, or form, maybe it is that you are saving a lot more money just to make sure you’re now you’re saving more.
Maybe it is that you just do a full sweep of your house, and just really critically think about the things that you don’t use anymore, and just sell them on eBay. I mean eBay is your friend. Maybe it is just that you want to just pick up an extra shift at work, or something like that.
The point here is to try and get as much money coming in as you possibly can because I have a feeling that this year is going to be a year that you might want to have a lot of cash on hand. The reason that I say that is, that we want to have a lot of savings so that we can push them, push that cash when the time is right towards investments.
6. Invest In The Stock Market
Specifically, I of course on this blog like to look at investing. so that’s what I’m going to talk about more. I personally think that stock market investing is definitely the easiest way to start to get your money snowballing, and earning you even more money.
Basically, it’s using your capital to earn you more capital, and growing that over time. Although it is not set in stone, this is definitely going to happen, we are definitely seeing a lot of volatility in the stock market at the moment and the stock market is still wildly overpriced, so I have a feeling that at some stage in the next few years we are going to get a very good opportunity. When the stock market either crashes, or we have a very large recession, where we are going to be able to come in and have a very low entry point into the market. But then over the long run, we can really ramp up our returns.
Once we’ve got lots of savings from step number five, we are going to step number six which is using that money to make us more money when the stock market goes down, when the property market goes down we want to be ready so that we can jump in as soon as that opportunity presents itself, and we can get in at a very low price. Simply because those low-priced times don’t last forever.
In fact, there’s good evidence to show that when it hits those real bugs in basement times, it actually ramps back up very very quickly afterward. So we have to be ready and we want as much cash as possible because if we are looking at something like stock market investing and we can buy 10 notes for five dollars, we want to have as much money as possible so we can take advantage of that opportunity.
We are essentially in that instance, buying our stocks, our businesses, at $50% off. We want to have as much money ready as possible, so we can take advantage of that.
Now, there are a couple of ways that you can go about your investing and specifically stock market investing. You can be someone that just dollar-cost average, which means that you invest right now and then in six months or in a year time you invest the same amount in the exact same time increments, and then that will average you out to the market return over a long period of time.
According to Goldman Sachs data, the average 10-year stock market return is 9.2%. Of course, in the short term, anything can happen. You can do kind of like a modified dollar-cost averaging strategy, where you really don’t want to enter the market now at really high levels, or really volatile times. You would rather wait to start your dollar-cost averaging and start it at a time that is optimal.
Alternatively, you could take the third approach which is what I like to do, make this year a year where you understand, and take the time to learn how to identify really strong individual businesses that you can sink your money into, to earn an even higher rate of return than what the market in general, can offer you. More like a 15% return as opposed to a 7% to 10% return.
Maybe it is the year where you actually say, “you know what I’m gonna sit down, and do this properly, I’m going to learn how to evaluate individual businesses to work out what their share values are, whether they’re good businesses and then identify times where I can buy it with a good margin of safety so that I can make a lot more money in the long term”.
If you did want to get a head start on that kind of method of stock market investing, the book that I always point people towards is Real One by Phil Town. That is a fantastic book, and it teaches you exactly what you need to know in terms of evaluating individual businesses, and buying them at the right times, at the right prices.
7. Fix A Bad Credit Score
Having a bad credit score is too expensive, not only are you going to be denied the best credit cards out there, but you also get the worst terms on car loans or home loans. You may not be able to qualify at all for a car, home, or apartment loan.
If you have a bad credit score, include it in your financial mission to boost it. Fixing your credit score will give you access to loans that you could leverage on, that is you could get loans easily to start investing in a business, making it easy for you to achieve financial freedom using other people’s money to invest in well-researched businesses.
Apart from having a better chance of getting loan approval, you’ll also be able to save more money with a lower interest rate.
In terms of boosting your credit score, there are credit companies out there that can help you with that. You can either use CREDIT PRO or CREDIT FIRM. These companies have been in the business for quite some time and have built a reputation.
For alternative ways to boost your credit score, you can check out my article on 5 Easy Financial Goals That Anyone Can Start. In that article, you’ll find out a way to boost your credit manually.
Summing It Up
Overall guys, I cannot stress enough how important these seven steps are, they are just absolutely critical, and they’re in perfect order too. It definitely starts with identifying the situation that you’re in, from there you need to cut the stuff that is pulling you back, things like debt, things like subscriptions, or just things that you don’t need anymore, and then once you’ve done that, make sure you protect yourself.
Start to work to build up a fund that protects yourself, and after you’ve protected yourself from any financial disaster, then you just pump money into building your wealth up as much as possible, so that you can then take that money and snowball it into more and more and more money.
That is the secret, that is how this year you guys are going to be able to get on top of your finances and make really positive changes. Positive changes to your finances will really truly set you up for financial freedom for the rest of your life.
I want you guys to be that person that knows where their money goes, I want you guys to be that person that understands what debts they have, and what subscriptions they\ve got. I want you guys to be the people that understand that the way to get ahead is through investing, and you’re really conscious of where your money is, and you’re really conscious of putting it in places where it makes you more.
Friends, I really hope that this year is an absolutely amazing year for you financially, and I hope that if you’re someone that is usually terrible with money, I hope that this article has inspired you to get your finances in order, and really start working towards financial freedom. Because if you follow these steps, you are going to be on the path toward financial freedom. Peace and Happy Hustling!
Related: 10 Things To Do To Retire Early