Before getting started I wanted to point out that even the thought of becoming financially free is a privilege that unfortunately not everyone has. Due to that exact reason, I think it is everyone’s responsibility to handle their money with care and intention especially if you are fortunate enough to strive towards this major goal.
Financial Freedom
Having said that, for those who do have the opportunity to become financially free have never had an easier economy to do so in. Becoming financially independent does not have to be a pipe dream. We live in a gig economy with innumerable ways to form more streams of income which will in turn allow you to save more. It is really just up to you. Are you willing to put in the extra hours and make the sacrifices to make it work?
There is a reason why this post is titled “…10 Simple Steps” and not “…10 Easy Steps”. The steps are simple and can be done, in fact thousands of people have completed them. But it all comes down to how bad you want it. The path is not easy but it is worth it.
Just remember the formula for success when it comes to financial independence has two key factors:
- Saving More
- Earning More
The more emphasis you can put on each, the quicker you will reach your goal.
Here are the 10 simple steps you need to take to become financially independent (FI). Of course, everyone’s path to FI is different so these steps might look different for you than they are for me. The order in which you complete the steps may vary as well but what really matters is that you are venturing towards your end goal of financial freedom.
Are you well on your way to financial freedom or just starting out? Give me all of the details in the comments!
10 Simple Steps to Financial Freedom
Step 1: BUDGET
This is arguably one of the most important steps on your path to financial independence. Understanding where your paycheck is going gives you the power to adjust it as necessary.
In this step, you need to evaluate where you are spending your money and if you would consider that expense necessary. Any necessary expenses are called non-discretionary, these are expenses like loan payments, mortgages, groceries, etc. All of these expenses must be paid for each month otherwise you will end up owing more.
While you are looking at your budget, you need to determine where can you make cuts. The expenses that you believe can be cut out of your budget, or aren’t necessary are called discretionary expenses. These are things like a gym membership, eating out and excess shopping.
Gaining this knowledge of your discretionary and non-discretionary expenses will allow you to make smarter purchasing decisions. It is also important to note that even if something isn’t 100% necessary but it brings you the most joy, doesn’t mean you should cut it out of your life entirely or at all. These are decisions that are personal and you need to make for yourself.
Step 2: PLAN
Step 2 is forcing you to create a plan on how you are going to reach financial independence. In this plan, it is important to make sure that the goals you make are realistic but also challenging. All goals should have a date, age, dollar amount or other important factor tied to them.
For example, if one of your goals is to save $1,000,000, you could say that you want to save one million dollars by age 40.
Now, you need to break that goal up into smaller goals. How much do you need to have saved in one year, two years, three years, etc. Some people even break it down to how much they need to save per day to hit their goals.
Something else that is essential with this step is understanding your why. Why do you want to be financially independent? If your answer is because you hate your job, then what are you planning to do once you quit your job?
Some common why’s I have heard include:
- To be a stay at home parent (have enough money saved up to not have to work again)
- To work for myself (have enough runway saved up to chase their dreams)
- To do work that matters to me (have enough money saved up where you don’t have to worry about a lower paying job if it is what sets you on fire!)
The point of this step is to develop clear and actionable goals so that you can hold yourself accountable. Your goal should constantly motivate you and keep you straight on your path to freedom. Remember, if your why isn’t big enough then your excuses will be.
This article outlines some key tips for setting any financial goals.
Step 3: SPEND LESS
Now that you have evaluated your budget and know where you can make sacrifices, it’s time to do so. But do not skip step 2 and start trying to just start spending less. It is important to sit down and know your goals before this step otherwise it is easy to make excuses to keep things in your budget.
The easiest place to spend less is in the discretionary expense category. Can you make your daily coffee at home instead of buying it at Starbucks? Can you workout outside or at home?
As mentioned in step 1, if something is a discretionary expense but brings you so much happiness that you can’t imagine life without it – that is fine. Just try to budget around that item. Cut in other areas so that items expense is now feasible.
Downgrades are also an option. For example, instead of paying $150 a month for your CrossFit membership, maybe go to a local gym and pay under $20 a month for your membership. Again, unless the CrossFit membership is your sole source of happiness, it might be worth cutting or at least getting a less expense membership.
Some ways that Jake and I figured out how to spend less are in the articles below:
Step 4: SAVE MORE
Now all the money that was flowing towards these discretionary expenses should now be in a path towards savings.
In your plan, you will have set savings goals. These goals should have numbers, dates and specifics tied to them.
Some good things to start saving for include:
- Emergency fund: 3-6 months worth of living expenses
- Retirement (401k, Roth, etc.)
- Other Investments (Stock Market, Real Estate)
A good way to start saving more is to up your retirement contributions through work, even a 1% increase can help in the long run. Meanwhile saving up for at least 3 months worth of living expenses. This is called your emergency fund. This will help if you want to leave your job or maybe you get unexpectedly laid-off.
Saving as much as you can is crucial. I personally like to calculate my savings rate so I can try to get better each month.
Savings Rate = Annual Savings/Annual Income
Annual savings means your total savings. This includes emergency funds, debt pay down, retirement savings, investment savings, etc. Annual income is your total income annually so think your 9-5 job and any other consistent streams of income from side hustles.
This app has actually kept hundreds of dollars in our pockets when we had to buy items online. Check it out!
Here are some more easy tips to save more money!
Step 5: EARN MORE
Side hustle time!
Earning more money has never been easier. Seriously. You don’t need to have any special talent or expertise really. If you have a car, you can drive for Uber or Lyft. If you love dogs, you can walk for Rover or Wag. Whatever you enjoy doing, there is probably a side hustle for that.
In fact, what you’re reading right now is one of our many side hustles. Choose something that you find joy in or that you want to really get better at. This way you are spending your extra hours in a productive manner that is also bringing you some sort of happiness.
Your side hustle could stay just that or you could build it into your own business that eventually lets you leave work entirely. It is up to you. I would heed warning to those looking to turn a side hustle into your full-time hustle, be careful you’re not leaving one job just for another. Automate your business from the start so it does not rely on you!
For more ways to make some extra cash, check out these articles!
- How To Earn Free Money Through Ebates
- How To Start A Blog
- 17 Must Try Side Hustle Ideas
Step 6: PAY OFF DEBT
This step is somewhat optional. It completely depends on the person and how they feel about debt in general. Some people are OK with leverage and some people can’t sleep knowing they owe money, either way it fine just know which side you are on.
Not all debt is good and not all debt is bad. Good debt is when you borrow money in hopes to make a greater return. Bad debt is when you are borrowing money to buy depreciating assets. Examples of each are shown below.
Good Debt:
- Mortgage (as long as you’re not over-leveraged)
- Student Loans (the idea is that your income potential is higher once you receive your degree)
Bad Debt:
- Credit Card Debt (I am all about getting points by using my credit cards but not when I cannot pay off my full balance each month)
- Car Loan (if you cannot buy a car in cash then you should not be using a loan to buy it)
My one piece of advice would be, whether you are OK or not OK with debt – pay off any bad debt and target the debt that has the highest interest rates first.
You could even consider refinancing that debt depending on if it is eligible.
For more on how I crush my own student loan debt, check out this article!
Step 7: INVEST
In this step the goal is to have your money working for you so you don’t have to work for it. Investing can be incredibly powerful if done wisely. Also, keep in mind that what you invest in and how much is largely determined by your risk tolerance.
Investing can mean a variety of things. You can invest in yourself if you want to start your own business. You can invest in the stock market. You can invest in real estate. The list goes on and on.
The main point here is that you want to be making a return on your money. Your investment goals should again be tied to your plan from the start. The amount you want to invest, what you want to invest in and when should be clearly outlined.
For more articles on investing, check out these ones!
- Everything You Need To Know About Index Funds and ETFs
- House Hacking Series Part 1: Covering the Basics
- Should I Invest Before Paying Off Debt
Step 8: STAY MOTIVATED
Here is where the simple vs. easy argument comes into play. These steps are simple. Most people can do them and without too much difficulty. But they aren’t easy.
Making cuts to your budget can be really frustrating. Having to spend your emergency fund on fixing your car can be discouraging. But it is all part of the journey and the fact that you are thinking this way now is helping you create a better life for your future self.
Knowing your why should help you stick to your plan and help you keeping pushing towards your goals but it can still get tough.
Some things that we like to do to stay motivated and on track include:
- Listening to podcasts (I learn new hacks every week through these podcasts)
- Reading blogs (These are some of our faves!)
- Facebook groups (Search “FIRE Movement“ or other related phrases – there are local group and global groups, up to your preference for which to join)
- Meetups (This is a great way to not only expand your network but learn from others)
- Conferences (Although some are expensive, these are great if you are looking to really learn from the best in the biz)
It doesn’t have to cost you a dime, just make friends with people who have similar goals to you. “You are the average of the five people you spend the most time with.” – Jim Rohn. This is really important when you are truly trying to better yourself and your financial health. When you are hanging around with careless spenders, it becomes easier to carelessly spend. Try to hang around with those who you want to be more like.
One thing that I find people struggle the most with is life style inflation, especially when it’s so easy to compare yourself to others on social media. For anyone struggling with that, I would recommend reading this article: How to Avoid Lifestyle Inflation and Track Your Net Worth.
Step 9: REPEAT
Easy enough?
You will want to revisit all of these steps on at least an annual basis during your journey to financial freedom. You can even revisit it more than annually if you find that works better for you.
Use this time to reflect on how well you did going through the steps last time and what you think you could improve on. Every single time I do this I find a new thing I can cut out of my budget and also tackle a new side hustle.
When I’m about to repeat the process, I like to use Mint since it has all of my historical budgets, transactions, credit scores, etc. It makes it a lot easier to my starting point to my current situation. This way I can easily see where I need to make the biggest changes.
Another thing I like to do before revisiting each step is calculating my real hourly rate and how it has changed over the year. This also helps motivate me spending wise because I see what I am really making per house and not just my yearly salary, which helps when you see price tags of items you might have just bought carelessly before.
Step 10: ENJOY đŸ™‚
Alright, corny – I know. But this is important and something I constantly find myself struggling with. As easy as it is to get caught in the weeds, just remember that you only have one life.
You don’t want to miss out on important things in life just because you were trying to be frugal. What really matters to you? Prioritize everything that means the most to you in life, prioritize them with both your time and money.
Remember, although financial freedom is the end goal – there is an abundance of money. You can always make more. Time is a limited resource that you cannot unfortunately make more of. Use your time wisely.
The Point of Frugalism is a great read for those looking to become more intentionally frugal.
Final Thoughts
Are you on your way to financial freedom? Start with step one and pretty soon you’ll be there. Just remember, the steps are simple but not always easy.
This post was incredibly fun to write so I really hoped you enjoyed reading it. If you found anything useful or would like to discuss any topic further in detail please let me know in the comments below!
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