financial freedom guidebook

FinancialFreedomGuidebook

2 | Financial Freedom Guidebook

Financial freedom is a phrase that a lot of people use and hear, but very few people know its true meaning. An entrepreneur or small-business owner might think financial freedom is about making enough money to run their business smoothly and without worry. A college student may think the term means having enough money to put themselves through school and still be able to enjoy a night out (or three, or four) with friends every week. But really financial freedom is bigger than that.

Financial freedom is about getting to a place where your money is working for you and you don’t have to worry about hazards such as losing your job, taking care of a costly repair on your car, or living paycheck to paycheck.

Financial Freedom for Dummies


But in reality, many Americans have to worry about such things. For instance, a CBS News article found that 7 out of 10 Americans are living under crushing debt or aren’t making enough money to cover their basic expenses. The story notes that financial analysts say having at least three months worth of liquid cash in the bank is the best place to be in, but even the country’s top earners say they’d only have about 52 days worth of funds available to them.

So how do you achieve financial freedom? It’s all about being well versed in the do’s and don’ts of personal finance, and planning for the future. Here a down and dirty - but thorough - primer on finding your way to the paradise called financial freedom.

Financial Freedom for Dummies


One of the biggest problems people have when it comes to money is that they don’t have enough saved for emergencies. Unforeseen circumstances like car repairs, leaky roofs, job loss, and medical emergencies can be expensive. For many Americans, the solution is to use a credit card to get out of trouble. But putting expenses like these on credit cards almost always to paying substantial interest, which is not the road to financial freedom.

That’s why it’s smart to build a strong emergency fund that can carry you through tough times. Experts say to have a saving account containing enough to cover at least 3 months, but if possible, it’s a good idea to save even more. That way, you can use those funds that you saved rather than racking up interest on a credit card.

Save For Life


When figuring out the best place for your emergency fund, shop around for the best bank. The best way to make your money work for you is by putting it in a savings account or money market account where it will gain interest. Interest rates on savings accounts are not through the roof right now, but a little bit of interest is better than nothing. Keep in mind that credit unions and online banks will generally give you higher interest rates on your savings account. But still, shop around until you find a rate and bank that’s best for you and your situation.

Also, in addition to an emergency fund to fall back on in tough times, be sure to save for tangible goals like a dream vacation, a new job, and your child’s wedding or education. Again, having cash to pay for some of all of these things, rather than putting it on a credit card, will save you money in the long run.

Save For Life


For some people, budgeting is a scary word. But a budget is almost always one of the first steps to financial freedom.

Once you know how much money you spend and what you spend it on, you can figure out how much you can afford to save and how much leftover money you have to play with and spend on such as going out to dinner, buying new clothes, or going to concerts and movies.

If you’ve decided you want to achieve financial freedom, track your expenditures for a month or two and then compare that with your

Know What You Spend


income. Are you spending more than you earn? If so, look for ways to cut back. Little things such as bringing your lunch to work most days of the week, or cutting back on eating at restaurants can make a significant impact on your spending.

Financial websites such as Mint can offer budget spreadsheets that help you easily see how much you’re spending. You can also use the Mint app, or similar apps, to electronically track your spending. In fact, many of the apps plug right into your bank accounts and credit cards, so the moment you make a purchase, it categorizes it and tracks it for you.

Know What You Spend


More and more studies are showing that Americans are sorely unprepared for retirement. While experts recommend putting away 15 percent of your salary to prepare for retirement, the typical American saves just 8 percent of their salary, if not less.

Retirement may seem far away, but it’s a time that most of us will face eventually. And advances in health care and helping people live longer, which means we’ll need more money to get by in those later years.

The best time to start saving for retirement is when you first start making money. The second best time to start saving for retirement is right now. Sit down and

Save for Retirement


calculate how much you think you’ll need to live on once you’re retired. Whether you think you can get by on $50,000 a year or prefer to live on $100,000, start putting away money that will help you reach that goal.

Be sure you know all the different types of retirement options that are available to you. If your employer offers a 401(k) and matches your contributions, be sure to take advantages of that. Those matching contributions are literally free money, and you’d be a fool to turn it down. You’ll also want to look at stocks, IRAs, CDs, and other savings vehicles to see which one works for you. You may decide that one or two of these best suit your needs, or you may decide that a mix of many different kind of savings and investments is best for what you’re trying to accomplish.

Save for Retirement


Our everyday lives are made up of many financial decisions, some big, some small. Do you buy the $20,000 car or the $40,000 car? Should you buy a latte at Starbuck’s every morning before work, or would you rather make your own coffee and bring it on your commute? Do you send your kids to a public school or a private school? Do you have to have the latest fashion or are you content shopping off the sale rack?

These decisions have lasting consequences, especially when you think of how all those little decisions

add up over a lifetime. That being said, life is about finding a balance.

If you do buy the $40,000 car, make it’s best to make coffee in the morning instead of buying it at your local cafe. If you’re good about buying clothing off the sale rack, it might not matter that you treat yourself to a massage every now and then. Again, it’s all about figuring out what works for you. Consider what makes you happy in the moment and what will make you happy when you’re retired or need cash to pay for a major plumbing issue, and act accordingly.

Think Through Big Purchases (and Small Ones Too)


We’ve all heard about the dangers of irresponsible credit card usage, and when it comes to responsible personal finance and the pursuit of financial freedom, we can’t stress this enough. Find credit cards that offer you a great interest rate and pay off your balance in full every month. You should also look for cards that offer cash back, airline miles, or other perks. Again this is a way of making your money work for you, and you’ll reap the rewards by being a responsible card user.

Also, know how credit affects your credit score. For instance, closing a credit card, or having a credit card that you never use, can be bad for your credit score. Your credit score is what will help you get a mortgage and other major loans down the road. By keeping your credit score high, you’ll get lower interest rates on loans, which will save you money.

Be Smart About Credit


Financial freedom is something that very few people can achieve on their own. That’s why it’s a very good idea to find a financial advisor who can help you reach your goals.

A good, trustworthy financial advisor will charge you based on a session-by-session basis, or by the hour. If a financial advisor wants to charge you based on the amount of money you make or want to invest, find someone else to work with.

A financial advisor can help you figure out the best way to pay down debt, how to properly save for retirement, and how to save money for thing like

a new home, vacations, a new car, your child’s wedding and more. They can also answer many of the financial questions that you were too afraid to ask or weren’t even aware of. Best of all, you can get to know your financial advisor over time and they can help you anticipate needs and generally make your life easier.

Many people think that only rich people need financial advisors, but everyone making money could use a bit of help figuring out how to manage their money. If you have a job and are starting to think about how to save and prepare for the future, seea financial advisor.

See a Financial Advisor


Financial freedom isn’t something you magically achieve overnight. It’s a goal you slowly work toward every day through good spending habits, smart planning for the future, and a willingness to evaluate your life and decide what’s most important to you.

Are you in a place that feels far away from financial freedom? To paraphrase something we said earlier (and also an old Chinese proverb), the best time to start working toward financial freedom is the day you start earning money; the second best time to do it is right now. Remember, when it comes to money, time is your friend, so the bigger head start you get on saving for retirement or that dream home, the happier you’ll be 5, 10, 20, or 50 years down the road.

Remember: It’s a Process

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financial freedom guidebook

Small Business & Entrepreneurship