Can you be debt free? Can you have enough money to quit your job and begin enjoying life? Can you travel the world anytime you want? Absolutely!
All of those options are possible just by following a few simple, time-tested rules. Implement them in your life now and you’ll be headed down the path to financial freedom-ville.
Spend Less Than You Earn
The most important step you can take toward financial freedom is to live within your means. Spending more than you earn is a sure way to be broke and in debt the rest of your life.
But how does somebody live within their means? The easiest way is to create a budget and stick to it. In order to develop a budget you’ll need to know how much money you have coming in and what obligations (bills) you have going out. Write those numbers down and allocate everything that’s left to either paying off debt or saving toward specific goals.
If your budget has more money going out than coming in, it’s time to either cut back on spending or increase income. You should consider doing both if you really want to kick your financial growth into overdrive. Two ways to bring in additional income are to sell unused household items or take a part time job.
A lot of research has been done on how debt impacts our lives and all of the research seems to indicate that using debt is one of the biggest impediments to building wealth. A reason for this is that instead of your money working for you, you are now working to pay interest on purchases made months or even years ago.
Another concept to consider is that using credit for purchases results in more spending. Dave Ramsey’s “The truth about credit” says that, on average, when a consumer shops with a credit card rather than cash they will spend 47% more on a purchase.
For most Americans, getting out of debt will be a long journey. They’ve gotten themselves into such a deep hole that they have a hard time believing they will ever dig out. All they need to do is focus on their goal, follow the rules listed here, and start digging. Most didn’t get into financial trouble overnight – nor can they expect to get out of it overnight.
Make Saving Automatic
Once you’ve developed a budget and know where your money is going, you may be surprised at how much money you’ve been wasting over the years.
If there is leftover money in your budget, start allocating a certain percentage of it toward savings goals. This can be retirement, a house, a child’s education, or anything else you want. The key is to make the savings automatic. Have them taken directly out of your paycheck before they even hit your checking account, so you’re not tempted to spend that money.
Most of the world’s millionaires understand that one of the keys to becoming, and staying, rich is to limit spending. They do it by buying reliable used cars, clipping coupons, and keeping their lives simple. Others may call them cheap, but they don’t care because those ‘other’ people are probably broke.
One thing you can do to start preserving your capital is to plan your meals, develop a grocery list, and then clip coupons for the items on that list. While using coupons is generally considered frugal, you’re not really saving any money unless you only use coupons for items you were planning to buy anyways. If you buy something just because you have a coupon for it, you just fell for one of the oldest marketing tricks in the book.
According to Thomas J. Stanley, Ph.D., in his book The Millionaire Next Door, 98% of the nation’s millionaires own the house they live in. That shows that those millionaires would rather build equity in their own piece of property, or own it completely outright, than to pad a landlord’s wallet.
I am not at all advocating the use of a mortgage to purchase a home, but the reality is that most families cannot afford to purchase a home completely with cash. In that case, it is still better to be paying a mortgage than renting, because part of the payments go toward equity in the home. If you find yourself in this situation, consider starting with a very inexpensive home, paying it off quickly, and then saving for a better home in the future.
Dave Ramsey offers some great advice for home buying. He suggests that buyers who can’t afford the 100% down payment option should only take out a 15-year, fixed-rate mortgage with payments totaling no more than 25% of their take-home pay.
Wealth is Within Your Grasp
The secret to wealth absolutely is not winning the lottery or hoping for a big inheritance. Most people who do fall into such “good luck” lose their money within a few years because they didn’t already have the financial management know-how to keep that money. If you want to be rich, follow the rules listed above, and read as many books as you can find on financial planning. Knowledge is power, and knowledge can lead to wealth.