Grow your money, 5 steps to financial freedom

This site is all about money, saving money, growing money, and becoming happier because we have less stress about money. The first step to this happiness is getting rid of the burden of debt and the fear that comes from living paycheck to paycheck. Here are the top 5 ways to grow your money and gain financial freedom.

1.Consolidate/ Pay off debt

The first step is to get rid of debt. Unless your debt is student loans, you are almost definitely paying a ridiculously high interest rate. [highlight]It should be noted quickly however, that when I say debt, I am not referring to a mortgage. We will deal with that separately.[/highlight] The high interest on credit card debt will literally rob you blind. Most credit card companies will charge you something along the lines of 15% interest on a carried balance, and thats being conservative.

The first thing you want to do if you have a large amount of debt and a high interest rate (anything over 10%) is to consolidate it, or buy it out. If you have debt in 3 credit card companies. It’s a good idea to get a loan and pay off all 3 of the credit cards as the loans interest rate will usually be considerably lower than the credit card companies, especially if you have good credit and a long standing relationship with the bank in question.

If you have a mild amount of debt, say between one and five thousand dollars. You wanna pay that off as soon as possible, start saving like a maniac until it goes away. Stop eating out, stop going out and deal with the debt. You are literally losing money every single paycheck because of the interest on this and I guarantee you can increase your payments by 30-50% on these small debts if you cut back on your spending and put some effort into it.

2. Start saving

Once you have your debt paid off, take those payments that have been going to the credit card companies/debt agencies for the last (insert timeframe here) and “pay” yourself using a savings account. HEY YOU, the one who just read that and said, “yeah right, I’m gonna enjoy this new found money before I do anything else.” YEAH I SEE YOU. That line of thinking is what got you into debt into the first place.

It’s okay to enjoy it. If you were cutting back really hard to make those payments, then just pay what you were previously paying into your savings account and enjoy the rest. Saving is not about living a boring, terrible lifestyle. It’s about securing your immediate future. It’s a big part of being financially independent and getting rid of that “what-if” doubt that finds its way to the front¬†of your mind every so often.

3. Emergency fund

The previous step and this step are intertwined. An “Emergency Fund” as I’m sure you know is supposed to be a set amount of months of your expenses. We use the 6 month system, because I have a rather high demand job and my wife is employed as well. Other’s might want a 12 month system if they want to be more secure but I would say the absolute minimum is 6 months. So what kind of expenses go into an emergency fund? EVERYTHING, but I’ll list them out so you get an idea

  • Mortgage/Rent for x months
  • Utilities for x months
  • Average Grocery cost for x months
  • Car/health/life insurance cost for x ¬†months
  • Average gas cost for x months
  • Cell phone cost for x months
  • Pet expenses for x months

Get the idea? I literally mean everything. The point behind this is that should you lose your job, you can maintain your lifestyle exactly the way it is for x amount of months. It’s a security blanket that prevents you from going into debt just to stay alive and it’s incredibly important.

4. Save for retirement

Next step is to save for retirement. My rule here is that if plausible and applicable, max out your company 401k contribution first. When you hit that using the same amount of payments you used for your debt and emergency fund, then fund a Roth IRA. You probably won’t max that out unless your company has a match, if you do max it however and have some leftover, then the fun begins, keep reading.

5. Pay off mortgage/Buy a house.

If you still have money at this point, it’s time to tackle the big boy. Start paying more into your mortgage, this is obviously everyones biggest expense. Also, it should be noted here at this point that you can make the decision to skip #4 above in place of buying a house, especially if you are currently renting. It’s a geographical decision obviously, since home prices vary across the nation dramatically depending on where you live and your needs. If you have the means to buy a house, it makes sense to do so, and your currently renting, then it might be time to take the plunge.

The reason I recommend saving for retirement over adding to your mortgage payment is that you’ll see much higher returns on starting your retirement investing earlier than you will later. Your home value will not get anywhere close to appreciating at the rate that your retirement fund will, so it’s important that even if you buy a house before you save for retirement, that as soon as feasibly possible, you start placing money into your retirement fund. I’m sure you have all heard the insane facts about starting earlier vs. later with 401k funding or IRA funding, but here is a fun calculator you can take a look at just for a refresher.

In conclusion…

I think you see the point here, this is really a lifestyle change, it’s putting a demand on yourself to pay off what you owe and start being responsible with your hard earned money. The more time and effort you invest in making sure you are secure now, the better the future for you, your children, and generations to come will be.

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  • Cash Poor

    Nice post on retirement, Unfortunately, when it comes to retirement most folks just don’t have any.. They fail to plan and plan to fail. You have to start investing early and let the power of compounding take over. That is the only key to building a significant retirement nest egg.