In this blog post from guest blogger Nichole Coyle, CERTIFIED FINANCIAL PLANNER™, she discusses how to pursue financial freedom. Read on to learn more.
Finding Your Financial Freedom
Financial freedom can mean something different to everyone. For some, it may mean they are debt-free. For another person, it could mean having enough set aside so they can retire comfortably. And for someone else, it’s having an emergency fund and living below their means. While many of us will dream about our version of financial freedom, it can take some time, hard work, and sometimes giving up nonessential purchases or working a second job or side hustle to achieve.
You may currently be dealing with staggering debt. Maybe you are out of work or feel stuck in a low paying job. Perhaps you’ve neglected your budget, missed bills, or have never been able to manage your finances. Maybe this pandemic affected you financially more than you ever could have predicted. We all have skeletons in our “financial history closets” so, let’s stop looking behind us, and instead look forward.
If you are ready to start working towards financial freedom, I’m here to give you seven steps to follow with practical advice to help you work towards achieving your goals.
Determine Your Motivation
Grab a pen and paper, your iPad, or whatever is handy, and let’s talk about what motivates you. Write down what being financially free looks like to you. Does it mean paying all your bills and seeing money left over going into savings? Does it mean having the money for that relaxing beach vacation? Maybe it’s the ability to give back to your church or a local non-profit financially. Could it be that you can go out to dinner guilt-free because you aren’t worried about your small food budget?
Write down all the things that you can think of, no matter how silly! Trust me; I’ve heard it all! These are your dreams, so dream big! Now, take out another sheet of paper, write down how all those things make you feel. I am willing to bet that if you’re picturing those things as if they are happening to you, that you have a pretty big smile on your face! I know that I smile when I think of myself sitting on the beach, sun shining, and waves crashing!
Take your dreams and how they make you feel to motivate yourself to do the rest of these steps! Keep coming back to what motivates you anytime you need to. Put reminders on post-its and stick them on your bathroom mirror, create a photo collage of your dream life and hang it on your closet door, whatever it takes, keep reminding yourself what your motivation is.
Look at Your Current Situation
Make a list of all your expenses (I like to separate the costs into two initial categories):
- Fixed Expenses (mortgage/rent, utilities if you’re on budget, cell phone bill, etc.) Include the amount owed and the date it’s due.
- Variable Expenses (groceries, eating out, clothing, entertainment, gas, etc.)
Include the most you’ve paid in one month over the last year, as well as the average amount you pay monthly. Now make a list of all your income streams. Maybe you only have one, and that’s ok! But if you drive for Uber or Door Dash occasionally, sell Mary Kay, or sell something on Etsy, make sure to include that. List out every single income source and write the minimum per month you’ve made in the last year, as well as the average monthly income.
Now, it’s time to put it all together and create a budget. There are lots of ways to do this, and because we all operate differently and have different situations, there’s not just one way to set up a budget. You can create your budget on paper, electronically or through an app. The goal is to gain control over your cash flow. Know how much is coming in, how much is going out, and what you’re spending your money on.
Look at your income
Once you’ve done your budget, you can see what is coming in and going out. If you don’t have enough income, you have two choices: 1. Spend less, 2. Earn more. It sounds simple, and in theory, it is. Spend less than you earn, but if you can’t spend less, you need to find a way to earn more. Maybe you deliver pizzas on the weekend, pick up another part-time job. For years I had multiple jobs in order to pay off my student loans, car payment, and afford other essentials. I’ve served food, worked in a concession stand, worked part-time on campus while in college, started a photography business, and among others. Is it easy? Not usually. Is it tiring? Yes. But, by the time I was 30, I had no debt, healthy savings, and retirement account. So, is it worth it? YES!
Start an Emergency Fund
I’m not talking about the $5 you have in your savings account. I mean a “my car broke down” or an “I need a new roof” fund. There are a lot of theories on what an emergency fund should be utilized. If you have high-interest debt, you’ll want to establish a small emergency fund, but you need to hyper-focus on the debt repayment. Work towards an initial emergency fund that will cover your highest insurance deductible. Does your homeowner’s policy have a $1500 wind/hail damage deductible, or how much is your insurance deductible? Use the highest number and set that as your first goal. If you have minimal low-interest debt, just a mortgage, or no debt at all, your first goal should be three months of expenses, and your highest goal should be six months of income.
If you own a business, have an unreliable paycheck, or have other special circumstances, your emergency fund goal may look a little different. If you have questions about this, or anything else discussed here, please feel free to reach out to me here.
Consider Your Debts
Are they high or low interest? Are the payments overwhelming or minuscule? Are your debts beneficial or burdensome? There is a place in a financial plan for using debt as leverage. Consider a home purchase. The average person doesn’t have hundreds of thousands of dollars saved up to buy a house in cash, but a mortgage lets you purchase a home and build equity in it.
However, if you have used credit cards to purchase anything you’ve ever needed, but not paid them off each month, then you might be paying hundreds of dollars for a meal that, had you paid cash, would have only cost $50. High-interest credit cards can easily spin out of control if you don’t stay on top of them.
Student loans, car loans, second mortgages, etc. all have their place and serve a purpose. However, if you are struggling to make all your payments, forgetting to pay a bill, or spending more than you can afford on credit, this will only hurt you in the long run. So, work on a plan to pay off your debts, especially those with high-interest charges.
I could talk for a very long time about investing, but I’ll keep it simple. It’s a good idea to look into investing once you have a handle on your emergency fund and your debts. There are many ways to invest but starting retirement savings earlier is one of my most reliable recommendations. The sooner you start, the more time and compound interest can work in your favor. In addition to retirement savings, there are various ways to invest in the short, mid, or long term. When you are ready, meet with a financial planner to talk through options that will work for your unique situation.
Enjoy Your Financial Freedom!
Take that vacation, take pleasure in gifting to your church or another charitable organization, whatever financial freedom means to you, ENJOY IT!
Plan Your Legacy
Ok, I know I said there were seven steps. However, once you start accumulating wealth, you’ll want a plan as to where it will end up, in the event you leave this earth before you enjoy spending it all. Having an estate plan in place will help give you confidence that your hard work won’t be squandered. You can make a significant impact on one or even thousands of people even after you’re gone. This type of planning can be simple or complex, depending on your situation. But, at the very least, you can create a plan to take care of your family financially and leave a charity with a donation that could do a lot of good. I know this isn’t a fun piece to think about; but, it’s an essential part of financial planning.
Working with a financial professional, like myself, may help equip you along your journey to financial freedom. As always, if you have questions or would like to discuss your unique situation, please don’t hesitate to contact me. Also, click here, so you don’t miss a blog post!
Nichole M. Coyle
CERTIFIED FINANCIAL PLANNER™
20333 Emerald Pkwy
Cleveland, OH 44135
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.
Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.
Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. For a comprehensive review of your personal situation, always consult your legal advisor. Neither Cetera Advisor Networks, LLC, nor any of its representatives may give legal advice.