The Four Steps to Engineering Personal and Financial Freedom

Do you want to start your own business, travel the world or simply just spend more time with your family? Whatever your dream is, don’t let personal debt get in the way of it. There should be a mandatory class in school which teaches people the following facts regarding personal finance, given that common misunderstandings so often create long lasting problems and stress.

Sure buying stuff can make us happy temporarily, but what are the thing in life that provide true lasting fulfillment? True fulfillment comes from having the freedom to pursue our own interests, work the jobs we want to work, travel and live where we please, while still affording the conveniences of everyday life. Acquiring unnecessary debt can greatly limit one’s possibilities. The following four steps are a road map for taking back control of one’s life.


Step 1: Minimize Expenses

Keep a budget, and write down all your expenses. There are now apps available for your phone which make this easy to do. You might be astounded to discover how much you spend on coffee or eating out each month.

Lower rent cost – Your rent is likely your biggest single monthly expense. Getting flatmates or moving to a cheaper area could save you thousands of dollars a year.

Use public transportation – While having a car is necessary in most place in the United States, if you happen to live in a city, consider using public transportation. You could potentially save money on car payments, car insurance, parking, and gas.

Stop eating out – Cut back on how much that you eat out at restaurants and cook at home instead. Bring a water bottle with you, instead of buying drinks every time that you are thirsty.

Monitor grocery purchases – Being conscious of what products that you are buying at the grocery store could cut your bill in half. Not buying heavily processed snack items could slim your waist while fattening your pocketbook. Replace drinking soda and juice with tap water. Buy nonperishable items in bulk at wholesale stores.

Ditch cable and your landline phone – While internet is necessary, stop paying for cable and a land line phone. For even more savings, you could consider also getting rid and your internet subscription and instead use your cell phone with an unlimited data plan as a wireless hotspot while at home.

Gym membership – Search for a cheaper gym or perhaps invest in a simple home gym. Running on a treadmill can be replaced with running outside or going on hikes, and many other exercises can be done through using a small set of free weights.

Curb coffee and alcohol purchases – Purchasing a large latte everyday likely costs you between $100 and $200 a month. A big night out drinking could easily set you back $50 to over $100. Even more in some high end venues. Making your own coffee at home and sticking to house parties or limiting consumption when out at bars can save you hundreds of dollars a month!

Don’t buy stuff that you don’t need – Just don’t buy it. Really, you have 10 pairs of jeans, you don’t need another pair.

Ask yourself what is the true reason behind your expenditures? Are they truly necessary, or do you just like the feeling of getting new things? Do you really want the product, or are you just trying to keep up with the Joneses? Don’t think of it negatively as not getting to have something, but instead think of the money saved as an installment payment towards purchasing your future freedom.


Step 2: Pay Down Debts

All the money that you save from applying the above expense reduction techniques, should be applied to whichever one of your debts has the highest interest rate, not necessarily the highest balance owed. If you have credit card debt, this debt will most likely be the one with the highest interest rate.

You can try transferring credit card debt to another card which has a 12 or 18 month introductory period with 0% APR. However, be careful of fees that may exist for doing so. Also, simply transferring the debt to a new card is not a solution, actually paying off the debt is still the goal. You should try to pay off the transferred credit card debt ASAP before the introductory interest free period ends and you start losing money again to interest.

Refinancing purchases or consolidating debt should be viewed as a last resort, and done only if there is no way you can afford your current payments or if you have debt with an insanely high interest rate. When you refinance or consolidate debt, you may lessen your individual payments and/or lower your interest rates, but you will also likely lose more money in the long term due to incurring greater interest over a longer payoff period. This loss in wealth is not worth the “convenience” of having just “one simple monthly payment.”

Finally, don’t acquire new debts. Save money and purchase products in full. Do not place purchases on a credit card unless you have the money to fully pay off the card’s balance at the end of each month.

For more, check out this article that I wrote on Avoiding the American Debt Trap.


Step 3: Become Location Independent (Optional)

If you can work online/remotely, as soon as you no longer have debt tying you down, consider moving to a cheaper place or traveling the world.

Check out this article I wrote on How to Leverage Currency Exchange Rates to Live Like a King.


Step 4: Invest

If you carry debt with large interest rates, it does not make sense to invest one’s money until all one’s debt is paid off. But when it does come time to invest, realize that the majority of people who give out financial advice are sales people, not financial advisers. Their job is to sell you a financial product and earn a commission. Many of these people do not even personally use the product that they are selling. Nor do they have any personal stake in the success of your investment. Additionally, often the fees associated with their products can cause you to lose thousands of dollars that you could of made from compounding interest in the long term.

The safest and simplest thing to do is just invest in a low fee easily managed index fund provided by a company such as Vanguard. If you have a 401k offered by an employer who is willing match a percentage what you invest, then it makes sense to first invest that amount in the 401k and take the “free money” which your employer is offering.

Investing also exists if forms outside of finance. How you invest your time on a daily basis is more important than how you invest your money. Eliminating debts and unnecessary financial obligations can give you more control over your time, your most precious resource of all. You can then put time in into other areas such as your family, learning new skills, building a side business or completing projects which can have greater returns in both in wealth and your overall happiness.

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