The 7 Steps to Financial Freedom

Everyone of us deserves financial freedom, yet most of us live under the illusion that it is an insurmountable and unachievable state, but it doesn’t have to be that way. The key to being financially free is in taking it slow and steady instead of chasing quick get rich schemes – it is not how far, but how well.

According to Dave Ramsey, the steps to achieve financial freedom are called baby steps. Here's a slightly modified version - by me - as follows:

1. Put $2,000 to $3,000 into a beginner emergency fund - This will serve as your initial safety net so that you don’t have to go into additional debt if an emergency arises while you are paying off your debt in step 2 below.

2. Pay off all debt using the debt snowball method – The key to building wealth is to get rid of all your debt, except the house or mortgage at this stage. When you get rid of debt, you can free up additional funds that can help you quickly build an emergency fund and start investing for your future.

3. Save 4 to 6 months of your monthly expenses into a Fully Funded Emergency Fund - Emergencies happen, take the pandemic for example. Those who had a fully funded emergency fund were able to ride the wave successfully even though they may have applied for the emergency benefits from the government. The goal of this fund is to put you in a very comfortable scenario to be able to take care of your living expenses so that you are not living from paycheck to paycheck. If an emergency were to occur today, it will only be a minor inconvenience because you feel empowered and confident that you can cover it.

4. Invest 15% or 20% (If you can afford it) of your household income into Tax Free Savings Account and Registered Retirement Savings Accounts – Every paycheck you receive now is an opportunity to invest for the future. If you don’t want to be a burden to friends and family, or you don’t want to run out of money when you are older, then you owe it to yourself to begin stashing away funds for your future. The goal here is to be able to max out your retirement and tax free savings accounts so that the investments can grow at a very nice compound rate, if invested the right way.

5. Save for your children’s College via an Education Savings Plan just like an RESP – Setting up an education savings plan for your kids is one of the best legacies you can offer them. The earlier it is started, the more the funds grow. When the kids come of age, they have a nice little nest egg to start College. This takes the financial burden off you at that stage of your life, as you can channel your paycheck, or income streams to other avenues to either raise additional income, or invest for your retirement.

6. Pay off your home early – The mortgage or home loan is always the largest loan you’ll ever apply for in your entire life. You also don’t want to be paying this loan all your life. Think about the additional funds you could free up for other things if you could pay it off early. The focus should be to begin to pay this aggressively.

7. Build wealth and give to charitable and philanthropic causes – When you build wealth to a certain stage, giving becomes a breeze. The world needs some of that kindness and it could start with you.

If we put the above steps into perspective, it is well worth it to note that some of them may not come in the exact order that was listed above. Steps such as saving for Kid’s college expenses should be started as early as possible to build up a sufficient and healthy balance for the kid’s tuition needs.

Some parents don’t have goals to fund their college’s education plans for the future, and that is okay too. Some individuals also are not into charitable or philanthropic giving.

The important takeaway is that it helps to have a plan, develop steps to get you there, and get started on those steps as soon as possible because time is a parameter that is constantly ticking, and doesn’t wait for no one.

For more information on the baby steps, and how to begin to implement a solid financial plan for the future, schedule a free 30-minute consultation with me by clicking here.