People often ask me what I think of financial books written by TV and radio personalities such as Dave Ramsey, Clark Howard, and Suze Orman. Usually, what these folks really want to know is, “What steps should I take to reach true financial freedom and independence?”
If you’ve ever wondered the answer to that question or you’ve just been curious where you’re at in your financial journey, then this series of blog posts is for you!
This will be the first post in an ongoing series about the steps you should take to reach true financial freedom.
In this post, we’ll start with an overview of seven simple steps I recommend people take to reach lasting financial freedom and be good stewards of their money, then we’ll go into detail about each step in the weeks and months ahead.
“Simple” doesn’t necessarily mean “easy” though. Simple just means that most people, regardless of their income level, should be able to implement these steps and, Lord willing, see positive results in their financial life over a period of time.
As I’ve said many times before, good stewardship and financial advice isn’t all that original or groundbreaking. In fact, as the writer of Ecclesiastes pointed out almost 3,000 years ago, “There is nothing new under the sun.”
These words are just as true today as they were then.
With that in mind, I can’t claim much originality for the steps outlined below. They’re simply my best efforts at a simple plan for people of all income levels to follow in order to reach true and lasting financial freedom, while being good stewards of the resources God has entrusted them with.
So, let’s get started…
1. Start with giving
The foundation of good stewardship and the first of our seven steps to financial freedom begins with breaking free from something the Bible calls “the love of money.” I believe there’s no better practical way to do this, than by giving away a portion of your income on a regular basis.
The amount you give isn’t the primary issue. What matters most is the condition of your heart when giving.
For a quick tip on how to figure out how much you should consider giving, check out this quote from C.S. Lewis.
2. Take care of the basics
Now that we’ve laid the foundation of good stewardship (i.e. giving), our next step to financial freedom is to take care of “the basics.”
In terms of your financial life, the basics, at a minimum would include the following…
- Secure proper insurance coverage
- Put together a personal estate plan
- Take advantage of free money/benefits
We’ll cover these topics in detail in a future post, but for now, just realize these items are an important part of your journey towards good stewardship and lasting financial freedom.
3. Establish an emergency fund
In this step, the idea is to save just enough in an “emergency fund” that you could handle a relatively minor financial emergency without it completely derailing your progress towards true financial freedom.
Depending on your income and insurance deductibles, this amount will typically range from $500 to $3,000.
There isn’t a one-size-fits-all amount though, so I’ll talk more about how to figure out the right amount for your situation in a future blog post.
4. Wipe out high interest debt
In step four of our simple steps to true financial freedom, our primary focus is to pay off debt using one of two methods.
The first is called the “snowball” method and the second is called the “avalanche” method. You may have heard of these strategies from other popular financial teachers.
There’s a good reason for that…they work!
For this step, high interest rate debts might include debts such as…
- Payday loans
- Credit cards
- Consumer loans
- Bank loans
- Auto loans
- Student loans
- Home equity loans
- Lines of credit
- Other forms of high interest rate debt
As with the other steps, we’ll walk through how to create a plan to pay off the debts that enslave you and move one step closer to true financial freedom in future blog posts.
5. Add a rainy day fund
Now that we’re debt free except for maybe the house and other tax-advantaged debts with relatively low interest rates (i.e. possibly some student loans, business loans, etc.), our next step towards reaching true financial freedom, is to transition our emergency fund into a fully funded “rainy day” fund.
For most folks, this is typically around 3-12 months of living expenses, but like most everything else in financial planning, the exact amount you should save isn’t necessarily a “black and white” number.
It will depend on a number of things including your ability to handle risk, your job security, whether other people depend on you for income, and a variety of other factors.
We’ll cover how to calculate the right amount for your situation in a future blog post.
6. Reach your long-term goals
Here’s where some of the real fun begins!
Although a good financial advisor will help you with each of these steps, many clients think of using an advisor starting at this step since it usually involves some sort of investing in order to reach your long-term financial goals.
Some of your long-term goals might include…
- Becoming 100% debt-free (and staying that way!)
- Saving for financial independence (i.e. retirement/reHirement)
- Saving for your children’s or grandchildren’s college fund
- Starting a business, non-profit organization, or ministry
- Taking a once-in-a-lifetime trip, sabbatical, or vacation
- Purchasing a vacation home or rental property
- And more!
We’ll cover the most effective and efficient ways to reach these goals, as well as how to invest for these goals in a future blog post.
Not sure what your financial goals are?
Don’t worry…we’ll cover that too!
7. Don’t stop giving!
As we reach the last of seven simple steps to true financial freedom, we’re right back where we started. No matter where you are on your journey to true financial freedom, you should always strive to give and keep on giving.
If you’re like me, then you want your money to make an impact.
You want your life to matter.
You want to spend your money in a way that will impact people’s lives long after you’re gone, long after your children are gone, and even long after your children’s children are gone.
In short, you want to live a life that counts.
What’s the best way to do that?
You guessed it! We’ll learn the answer in a future blog post.
How to reach true financial freedom
There you have it…seven simple steps to true financial freedom.
The only thing we haven’t covered yet is the one principle that ties all of these steps together. If you have a good eye though, you probably noticed something…
- 1. Start with giving
- 2. Take care of the basics
- 3. Emergency funding
- 4. Wipe out high interest rate debt
- 5. Anticipate the unexpected
- 6. Reach your long-term goals
- 7. Don’t stop giving!
The road to true financial freedom doesn’t begin with becoming debt free or investing in a hedge fund. It starts with having the mindset of a steward.
In particular, it starts with something I like to call the stewardship principle and we’ll cover it in the next blog post!
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