9 Steps to Financial Freedom
1. Shift to a net-worth mindset and start tracking your net-worth (the most important number in personal finance)
While your income, your savings rate, your investment returns, your debt to income ratio, and all those other numbers are important when optimizing your money, the single most important metric that you should be tracking is your net-worth. Your net-worth measures how much money you are worth by subtracting your liabilities (debt/what you owe) from your assets (what you own that has value, your cash, and investments). It doesn’t matter how much money you make or how much money you save if your net-worth isn’t going up. This was a big early mistake I made, so start tracking your net-worth today.
Start Tracking Your Net Worth For Free (ASAP)
2. Track where your money is going
After you start tracking your net-worth, you need to track where your money is going. Whether this is student loans, bills, food, entertainment, etc. This might not be the most exciting thing to do, but is CRUCIAL and actually does get more exciting the more money you are making (and seeing your investments grow!) Knowing where your money is going is more important than budgeting – it’s about accountability and adopting an optimization mindset. It really can put your spending in perspective.
I will admit, I’m not a huge fan of fancy budget spreadsheets, so I just use free tracking apps like Personal Capital. Then once a month I used the data and wrote down every bill and loan I had with the numbers next to them (some obviously varied slightly from month to month) along with every time I spent money on going out, food, clothes, etc. You’d be surprised at the things you catch that has affected your spending over the last year. Slight tweaks and adjustments can make all the difference in the amount you save. This was how I was able to identify how much money interest my student and car loans were accumulating and then identified it was critical for me to start paying them down rapidly.
The best free tool to track where your money is going is the same tool to use for your net-worth: Personal Capital.
3. Keep building new skills / improve your career value
When I first started working after college in 2010, I had little skills other than what I learned in my classes and having previously worked at a grocery store. Most degrees are not going to give you a six-figure salary right away, in fact, in 2017, the average salary for a recent college graduate is just under $50,000. Not bad though, right?
However, I do not know too many people that are even making close to that right after college, but environmental factors (where you live), type of degree, etc. can affect that number. I was lucky in 2010 to get a job about a month after graduation, but it was a starting salary of $30,000 — nothing too glamorous.
Then in 2014, I was let go from my job (my department was being consolidated) and it was just a few weeks shy of Christmas (Thanks Santa!). But luckily, I was looking for additional side income just before this was happening so I was making some money on the side still.
While I was nervous and scrambling to figure out what to do for full-time work, I began looking into digital marketing (I already had a blog about music that got me into SEO, analytics, etc.) and how I could improve my overall career worth. I wanted to find a job in something that I was really starting to enjoy as well as improve my future salary options. Here are the best skills to learn for the future.
This led me to learn and acquire free certifications for Google Adwords, Google Analytics, and HubSpot’s Inbound Marketing Certification. Of course, his required studying and using the programs on my own, but once I passed everything I was able to significantly boost my employment credibility.
Now you aren’t going to make huge money overnight, but this led me to find remote work with start-ups that were willing to give me a chance. Sometimes you may have to be an intern or even work for free, but that experience and knowledge will add so much value to your resume.
Within 3 months of being let go, I was working for three different companies remotely in digital marketing that not only paid my bills, but allowed me to build a network of new contacts, and led to a new career path. In those three years since I’m now a Digital Marketing Senior Manager at a great software company called EveryoneSocial and I provide digital marketing consulting for other companies and startups that all improved my career worth.
Yet, you do not have to pursue digital marketing. There are many other career changes you can make that will lead you to advancements in your career and salary, but you’ll have to put in the work yourself to make it happen. But with so many great free resources online, you can improve your career without having to go back to school.
4. Diversify your income streams and start a side hustle
Being that we are in the 21st century, it’s so easy to build a side hustle. It’s an amazing time to be alive and to find ways to make money. If you haven’t yet checked out Gary Vaynerchuck you definitely should. While not everything he says is groundbreaking, just watch some of his videos about creating side income and you’ll be inspired.
Here are some places that can help you make side income or even potentially full-time income, but do not expect to make thousands of dollars instantly, but know that it’s definitely possible.
AngelList – Full-time, Part-time, Contract, Freelance work
Remote – Full-time, Part-time, Contract, Freelance work
eBay – Sell things or drop ship
Amazon – Sell things or drop ship
Etsy – sell your art, crafts, etc.
Flippa – Buy a business or starter website
CrowdSpring – Freelance design work
Make money blogging – ads, affiliate links, reviews, paid posts, etc.
5. Pay Yourself First
But I have bills due! One mindset that makes saving money easier is to pay yourself first. It was a concept I first read about in Rich Dad Poor Dad and I thought it was really interesting. The author essentially stated that he would save as much as possible before any bills were due and would leave just enough to make sure he had no late payments on bills.
Now, I don’t recommend waiting to the last minute and digging through couch cushions for change to pay a bill, but I did like the concept of paying yourself before all else.
I started small, about 10% each paycheck would be taken out for my savings accounts. Half would go to my Vanguard retirement account and the other half to my savings. Then, I kept increasing it and diversifying where the money went. Anytime I go a raise or made side hustle income, I would do the exact same thing as soon as it cleared in my bank account. Now, I’m on track to save 30% this year of my overall income, which I would like to increase to 40% by next year.
By paying myself first I was able to accomplish two goals – being able to invest and then spend less overall since there was less money in my account after the month was over. I made sure that savings were definitely happening, and I had peace of mind that money was actually being saved. The great thing is, once you get this started with the right funds, you then have it automatically taken out, which is even less work for you to manage.
6. Be An Investor Not A Consumer
A majority of people in this world are consumers and not investors. But investing is essential to building wealth. While there are many great investing strategies, I am a huge fan of Vanguard and index fund investing.
When most people get a raise or have extra money, we look to buy things that are not going to add much to our overall wealth. Money goes to new fancy cars, boats, clothes, you name it. While consumer spending is not necessarily a bad thing, you have to narrow this down, be selective, and ask yourself, “Will this purchase add value to my financial freedom?” Most likely the answer will be no. I ask myself this almost everytime I get the urge to buy something that I do not necessarily need at the time. This allowed me to free up hundreds of dollars a month that I could put to better use and in places that can provide me with some additional income.
Some ways I put money to work instead through investing:
Vanguard Roth IRA for retirement
Vanguard Brokerage account for additional savings and returns
Savings account for an emergency fund
Fundrise for getting into more real estate diversification (eREITs)
Real Estate (Rentals, house flips, and to build equity)
7. Find Mentors (Friends, Family, Online Experts)
This might be one of the most important tips when it comes to financial success. Find a mentor or mentors and really pay attention to everything they do. Even if you are unsure if they will work with you, reach out and ask as many questions as you can. You will likely be really surprised by how much older experienced people are willing to teach and help you.
If you do not have any friends or family that are mentor worthy in your eyes, look online for experts and even if you do not reach out to them, follow their blogs and advice (Note: do not blindly follow advice though, always do your own research on top of what you are learning from others).
I was fortunate enough to have two friends who I’ve known for quite some time who are financially free and have been since their mid-twenties. I gravitated towards them and learned from them how they make income besides running their business and where they put their money to work. We still talk about investment opportunities, real estate, and various ways to make money.
8. Just keep reading
As a kid, I loved reading and being able to choose a new book from the library was the highlight of my childhood. Then something changed, I got to high school and college and reading felt more like a chore. I was rarely reading, except for the occasional blog or required textbook for school. Even after graduating, I never picked up a book much, especially about finances!
However, as I started this journey, I realized how essential reading was to developing my financial IQ. There is nothing that has a higher ROI (return on investment) in my opinion, than reading a book. In 2017 alone, I’ve already read 8 financial books, which have given me ideas that I am confident will make me a ton of money over time.
Now I’m moving on to books about real estate and business, all which are relevant to improving my finances and how to generate more income.
Here are some of the blogs and best books on money that I’ve read. I am also now starting to read through Grant’s best money books.
MONEY Master the Game: 7 Simple Steps to Financial Freedom
The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
The Only Investment Guide You’ll Ever Need
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
The Millionaire Real Estate Investor
Being patient has been tough, but I know that I’m on the right track and the more I can save and invest the faster I will reach financial independence. Many of you may be reading this and wonder why I only have $35,000+ in Vanguard savings when I’ve been at this for almost 3 years. But I was starting from not only zero, I owed over $50,000, so I’m excited how far I’ve come in just 3 years! I had to not only invest time building my knowledge, but improve my career to the point where I could make a solid income and side income, and then start investing that money. Now it’s all about patience and optimization.
The cool thing is with compound interest and continuing to invest like I am, the growth of my account is just starting to have an exponential curve – where the rate of my investing returns are starting to accelerate. Seeing more of my efforts coming together in the next few years will it make all worth it.
So don’t be discouraged, even if you are only saving a few dollars a month, it all adds up, and in a few years you’ll look back proudly at your accomplishments. Honestly, I can’t believe how far I’ve come. This stuff really works.
Creating financial freedom takes time up front, but the more you learn, the less time it ends up taking. I always find at least 20 minutes every day to read about money and I’ve learned so much in just the past year.
The amount of content may seem overwhelming at first, but you’ll start to see the bigger picture and everything will begin to make sense. There is this stigma around finances that it is complicated and the industry wants you to think it is too. But when you get down to it, it’s not that complicated. There are tried and true methods.
I’m glad I started looking at this when I was in my mid-twenties more closely, but of course, now I wish I knew all this info when I was even younger. So don’t wait, don’t put it off, start right now. And while I may not be able to retire next year or even in five years, I am well on my way to being financially free well before the average retirement age. Let’s do it!
To learn more check out the Financial Freedom Podcast and my book Financial Freedom: A Proven Path To All The Money You Will Ever Need.
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