Four Steps to Financial Freedom

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Debt Management

Finding Financial Freedom

As the holiday season approaches us in a way that only the holidays can (slowly at first, then with all-out gumption). You are probably thinking, yes, yes, I know the holidays are coming. I’ve got a million things to do and projects to finish; I do not have the time, nor the patience to talk to anyone about finances.

But here’s the thing: there is no better time than now to talk about finances. You may be in debt up the wazoo; bills may be piling up faster than your holiday treats; the best time to talk and make changes is now. There’s no time like the present (see what I did there?)

Financial freedom.

Everyone may have their own unique set of circumstances when it comes to income and obligations, but one thing can be agreed upon across the board: financial freedom is something we all strive for, but have trouble taking steps to get there. Four steps need to be completed, so you have a solid financial foundation.

Also Read : It’s College Savings Month: How Are Minnesota Families Saving?

  1. Protection

life insurance

 

Now, this is an area you may not have thought of when it comes to finances. But let’s take a look at it. For many of us, we would not be caught without car insurance while driving. It makes sense, right? Our cars are nice. And cars are expensive. It would be foolish to drive without it, right? Yes. Yes, it would be.  

How about homeowners insurance?

When you purchase your home, one of the caveats of purchasing is homeowners insurance. In case the house catches fire, or there is some freak accident involving hard-as-a-rock fruitcake. Homeowner’s insurance is there for you to repair things that break, and to make sure the bank’s investment is covered. When it comes to insuring our very lives, that is often left out.

But it shouldn’t be. If something happened today and I found myself all the sudden a single mom on one income, I’d be pretty much done for. That’s where the insurance steps in: so I can carry on with bills, mortgage, and funeral costs, as well as adjusting to losing my spouse’s income.

2. Debt Management

Debt Management

Debt sucks. I am pretty sure paying interest to the credit card companies is not on your list of things you love to be doing. Essentially, paying interest is like throwing your money in the garbage, or lighting your money on fire. That money should be working for you, instead of working to fatten the salaries of large corporations.

At this point, you are probably nodding your head. Yes, yes- throwing money in the garbage or lighting it on fire is not your idea of a good time. Here’s the thing, to achieve any financial goals, we’ve got to turn that interest payment into payments to your savings account rather than chucking it into the fireplace.

The first step toward paying off your debt involves a couple of things:

  • Identifying what you owe. This can be as simple and maybe a smidge uncomfortable. Take a look at your bank statements and your credit card bills. I’ll wait. You go grab those. Take a look at where the smallest amount owed is- this is your starting point.
  • Pay off the small debt first. This may seem counterintuitive, but the truth of the matter is that you’ll pay off your debts in a successful manner this way.
  • Take the money left over from debt payments and apply to the next payment. Once you’ve paid off your smaller debt- apply that leftover money to your next debt payment plan. It’s like a Jedi mind trick of finances. Once you have momentum built up by paying off a debt-  use that force to pay off other debts.

3. Emergency Fund

Emergency Fund

Can I tell you something? Emergencies happen to everyone. No one is immune to them. Recently, I had something happen that changed my life in three little words: nonessential organ failure. Yep.It sounds about as cool as it was. Hospital bills and surgery bills are now filling up my mailbox right alongside all the Christmas cards.

Now, emergencies come in all different shapes and sizes. It could be the tires blowing out on the way to grandma’s house. Or the water heater happens to bust. For me, it looked like an unexpected stay in the hospital.

Most emergencies are expensive. Hence, the literal part of the term “emergency fund.” Ideally, the rule of thumb is to have three-six months of income set aside. It is kind of hard to put aside money if you are stuck in debt. I know, trust me on this one.

You may be thinking that I am totally bonkers for suggesting you can pay off debt and start saving at the same time. And that may be a bonkers situation for you. But saving does not have to be this giant amount. It’s a process that is built upon over time. Start where you can. It all adds up. Saving just ten dollars a month can end up saving you $120 at the end of the year. It can save you even more than that if you put it in the right account- an account that gains interest.

4. Investment

How to Invest

Now comes the super cool sounding part- because it is super cool. My husband and I have a saying “Make your money work for you twice, instead of working twice as hard for your money.” Sounds awesome, right? Because it is totally awesome. I want my money working for me when I am parked on the couch watching Elf for the twentieth time.

Investing money is a time issue. Money needs time to grow. Your money also should be growing faster than the rate of inflation, which is around 3-5%. Do you still have that bank statement out? Take a look at the interest your money is gaining on a monthly basis. If it is smaller than 3-5% of return than you are actually losing money.

Say what? Yes- your savings should be making money at a higher interest rate than what the Retirement is something that should not catch you off guard.

Start saving.

Take a look at the options available to you. Make time to meet with a financial advisor to discuss your options. Because retirement in our golden years should look like one big party bus full of our dreams; driving off into the sunset for the destination of the beach and never-ending Mai Thai happy hour.

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