Looking for true financial freedom? Tired of getting advice from your parent's financial advisors who bought Apple Stock for pennies and houses cost under $30,000? Sure, you own 300,000 in Apple Stock, it was under a buck for 30 years. It was under 40 cents from 1980 to 2004. Then, Apple did a 4 to 1 stock split three times during that period. Now it pays 65 cents per share per quarter in dividends.
It now sits at $142. For the rest of us, we have to make it happen. We have to create our own path to keep up with today's prices because real estate has 20x during the same period.
Here are my updated steps to financial freedom for today's world where you can still get your ice coffees, go to the movies and eat out with your friends!
Step 1: Start an Emergency Savings Account
First, you’ll want to start a high-yield savings account with compound interest. Compound interest adds the interest to your balance and then, pays you interest on that balance.
You earn interest on earned interest. Your initial goal is to put aside $1,000 in your emergency fund. You can fund this all at once – or over time, such as $100 a month for 10 months.
Axos pays 20x the average interest rate on a savings account and it’s FDIC insured. Click Here for Details. How much can you save and how much will have in say two years or twenty years? Click here for our compound interest calculator.
Another option for your savings account is an all-in-one solution like M1 Finance. They allow you to start a savings account, a free checking account PLUS invest and borrow all within the same app. If you like to see everything under one roof, plus use their smart investing to copy portfolios and one-click rebalancing then M1 Finance comes highly recommended.
Step 2: Get Control of Debt and Build Credit
When I created my very first budget, I quickly realized that I needed to consolidate my student loan payments and my truck loan into one payment. My first job as a 6th grade Science teacher didn't pay enough to cover my student loan payments AND my truck/insurance payment.
I had 23 student loan payments and a huge truck payment, and after I consolidated all the debt into one payment, I had a payment lower than my truck payment. I was able to quickly pay off this consolidation loan with the extra leftover each month.
Now, if you have too much credit card debt, you’ll also want to use Payoff to reduce your high-interest payment into one low-rate monthly payment.
What I like about Payoff:
- Focused on Getting You Out of Credit Card Debt
- One Fixed Monthly Payment
- No Late Payment Fees
- Increases Your Credit Score
Then, tackle your credit. You'll pull a credit report and correct any inaccuracies. Then, add rent and monthly expenses that aren't currently on there. If you don't know how to add rent, here's how. Then, calculate your Debt Utilization ratio by dividing your total balances by your available credit. You want that to be very low, ideally never breaking 30%. Click here for the exact steps to raise your credit score by 50 to 100 points fast.
Step 3: 3 to 6 Months Emergency Fund
Then, calculate 3-6 months of living expenses by multiplying your monthly expenses. You want to set aside this much in the emergency savings account from step one. This is in case you lose your job or have a large expense (i.e. car maintenance, air conditioning breaks, etc.).
When you’re budgeting, you’ll want to use the Zero Based Balance Budget to calculate your income/expenses down to the penny.
If you have to tap into this fund for any reason, remember, you’ll have to startover on Step #3 to get it back to the 3 to 6 month level. Always return to this step to pad your emergency savings account.
These are the first three steps that most financial advisors, financial blogs and financial TikTok experts will tell you. Now, instead of investing 15% of your income into retirement right now, I'm saying let's start a side hustle ASAP.
Step 4: Start a Business or a Side Hustle
Because a house is a major investment and living expenses have dramatically increased, this decade will be all about the side hustle and starting a real business. You'll be able to add these new tax deductions and start saving money WHILE building your business.
One strategy I use is to set a goal to add one new “passive income” stream to my portfolio every year. You can shorten this time period because as soon as you add one, you'll want to add another one as fast as possible.
What I love about this step is there is no wrong way to do this. You can start a side hustle in real estate, apartment buying, digital downloads, online courses or start a business with your own clothing brand or online teaching hub.
Here are 7 Side Hustles for Building Passive Income:
- Create a Passive Income on Etsy
- Air BNB Vacation Homes and Cabins
- Flip Estate Sales, Thrift Finds and Garage Sales
- Start an Affiliate Marketing Side Hustle Around Your Niche
- Start Buying Duplexes that Cover ALL Expenses
- Start Teaching Courses and Use TikTok to Build Audience
- Start Selling “Downloadables” for Recurring Revenue
When you circle #1, #2, #4, #5, #6 and #7, you'll quickly notice that is income that comes in while you sleep. In order to create financial freedom, you need money coming in WHILE you sleep, WHILE you vacation or WHILE you grow your side hustle.
That's why there's no “right” answer here because it will come down to what you enjoy and what you can see yourself doing. Right now, I have paid off my house, my rental, my farm WHILE I'm building side hustles. I have 8 different passive incomes, and now, I'm building an audience on TikTok which could lead to brand sponsorships, YouTube revenue and additional affiliate income.
Step 5: Start Your Retirement Funds
We went out to our financial experts on TikTok to create the best investing checklist, and this is what they all agreed on. These allow you to save on taxes while allowing you to grow your accounts without paying taxes on the growth.
First, if you have a company that matches what you put in your 401k, MATCH that first. That's free money.
Second, if you haven't setup a heath savings account, you'll be able to setup a $75 per week savings account that can be used at anytime for HEALTH purposes. Plus, that's tax deductible.
What is an health savings account? Referred to as an HSA, they are like personal savings accounts, but the money is used to pay for health care expenses. You own and control the money. The money you put in this account is not taxed and can be invested similar to a Roth IRA.
Third, you'll setup a $125 per week savings to your Roth IRA to hit your yearly contribution limit of $6,000 per year. I'll create a new series on the best brokerages to use for your IRA's. If you have a preference, leave a comment below.
One of the reasons we chose the Roth IRA is that you can invest up to $6,000 per year and then, enjoy all the growth at age 59 1/2 without paying taxes on that growth. Another reason is that if you need to tap into your reserves for any reason, you can withdraw from a Roth IRA anytime. You can withdraw the amount you have invested (not the growth) without paying taxes because you invest after-tax dollars into your Roth IRA.
Fourth, you'll max out your 401k contribution. You can contribute up to $19,500 every year.
Last, anything you have left, you'll split this with your passive income goals in the next step and your brokerage account to invest in stocks, index funds and companies you like. Your goal is to create systems to automate this as much as possible.
Here's what I mean: Once you set up your accounts, do you have an auto-invest, auto-transfer, auto-saving system setup to automatically meet your financial goals? If you start a business, do you have a system for growing your audience and your revenue? Make it a challenge to setup these systems to shortcut and automate the wins here.
Step 6: Create Passive Income
Skip this step if you have a six-figure career. Normally, this method is the typical “pay off your mortgage”. I have replaced this step with create passive income. Wouldn't you rather have cashflow coming that covers your mortgage and living expenses? This is the time to set that up…
Let me detail a plan here:
Let's say you want to live rent-free in a nice house. You could buy a duplex or quadplex (or any setup that allows you to rent out the other spaces). Then, the rents should cover ANY expenses. That's easy to understand and I've seen this explained 1,000 times.
Then, let's say you have another goal of living in a “dream home”. You save up for that dream home and then, you rent out your current unit to increase your cashflow. That cashflow should be enough to cover your dream home. If it's not, you're not ready for your dream home just yet.
Now, once your income starts growing, it's time to take a look at specific passive income ideas. Pick one. For example, if you are adding real estate to create passive income, then we'll focus on real estate. Then, we'll pick a strategy like duplexes or Section 8 housing.
Next, you'll set goals to add one new passive income within a certain time period. This is the “stack your cash” method where you create an income stream of $500 per month. Then, add another to increase the total income stream to $1,000 per month. After a few years, you'll see this grow.
Once that gets to a point that you have the extra for your “dream home” PLUS lifestyle, then go for it.
Step 7: Grow Your Portfolio
At this point, you'll see what is working for you whether you choose to invest in real estate, dividend stocks, your business and now, you'll work on building your passive income portfolio and growing your wealth. Use this wealth to pay off your mortgage and any debt that you take on throughout this process.
Frequently Asked Questions about Financial Freedom
Financial Freedom allows you to live life on your terms regardless of expenses. This allows you to make life decisions without being stressed about the financial impact. You control your finances instead of being controlled by them.
If you're spending $75,000 per year, you'll need to save 25x this amount or $1,875,000 to achieve financial freedom.