By: Evan Shelton
The rich rule over the poor, and the borrower is slave to the lender.
– Proverbs 22:7
For liberty-minded individuals, the prospect of slavery doesn’t sound very appealing. Even if you don’t believe in the Bible as an authoritative text, it’s hard to deny the truth of this verse. We can see every day how the wealthy and the elite of society enjoy more freedom than those in the middle and lower classes. So we should probably just complain about it and vote to change it until it either changes or we die, right? Odds are the latter will come first. Listen, I’m not saying we shouldn’t vote, what I’m saying is, we should first and foremost create the change we want to see in our own lives. That’s what this blog post is about: How to achieve Financial Liberty in your life. My goal is to provide you with some simple, high-level steps to move your needle toward Financial Liberty.
Step 1: Make and Use a Budget
Oh man, we are one paragraph in and I’ve already used a bad word. The word “budget”, for many people, conjures up images of bread and water and sitting home alone on Friday night. But the truth is, a budget is simply having a plan for your money. If your plan for your money is filet mignon every night and partying every Friday, that’s fine. Just make sure you have a plan. Living on a budget allows you to tell your money where to go instead of wondering where it went. On average, people who live on a budget save 20% more per month than people who don’t. That’s like getting a raise. How would a 20% raise affect your life?
Step 2: Eliminate Consumer Debt
This is a tough one for people to wrap their heads around. Everyone has debt, right? Everyone has a car payment at least, right? Well, not everyone. Some people have discovered the freedom of a debt-free lifestyle, and you can too. Here’s the deal, if you can afford a $300/month car payment, you can afford to save $300/month toward buying a new car in cash. And look, it’s not that I don’t want you to have nice things, I just don’t want them to have you. What I want people to understand is that consumer debt is like reverse investing. You are paying interest instead of earning interest. To achieve Financial Liberty, you need your money to work for you, not against you.
Step 3: Prepare for Setbacks
One of the primary ways that many people are kept in financial slavery is a vicious cycle of crisis-living. The cycle looks something like this: A mother is working an extra job to make ends meet. Because of her lack of free time, she picks up McDonald’s on the way home to feed her hungry kids. Unfortunately, the McDonald’s purchase causes an overdraft in her bank account, effectively making her pay an extra $35 for the meal. That is unfortunate, because she was planning on spending $35 to get her oil changed in her car, which was long overdue. After a while, her car engine breaks down and she has to put $1000 on her credit card to get it fixed. Now her budget is still tight and she’s paying back a $1000 loan at 24% interest as well. This type of scenario probably feels familiar to many people. Most of us have experienced one crisis spiraling into others. Escaping this cycle is an important step in achieving Financial Liberty.
So how do we escape this cycle and better prepare for the setbacks we know are coming at some point? There are two main ways. The first one is to build up some emergency savings, and the second is to make sure you have adequate insurances in place. For the emergency fund, 3-6 months of basic expenses is a good rule of thumb. If that amount seems daunting, start out by saving up $1000 and go from there. Even just $1000 between you and unexpected expenses can go a long way in breaking the crisis cycle. As for insurance, there are 7 types of insurance that everyone needs. They are health insurance, auto, homeowners/renters, long-term disability, life, umbrella liability (once you are a homeowner), and long-term care (once you start getting close to retirement). Additionally, identity theft protection that includes working with a restoration consultant is an important product to have in place as well.
Step 4: Establish Goals
Zig Ziglar said, “If you aim at nothing, you will hit it every time.” By establishing financial goals, you’ll be able to track your progress and make adjustments along the way. To make sure your goal setting process is effective, make sure they are SMART goals. SMART goals are:
Specific: Be as detailed as possible.
Measurable: Attach a specific dollar amount to them.
Attainable: Make sure it’s reasonable. You can always make a new goal once you achieve this one.
Relevant: Make sure your goals make sense in your overall plan.
Time-bound: Set a specific deadline to achieve your goal.
By making SMART goals, you can better visualize both your goals and your progress toward them.
*One final note on goals: Often the best methods for achieving a goal involve investing and taking advantage of compound interest. Reach out to an investment professional to learn more about investing.
Step 5: Be Generous
What? Be generous? How does giving money away help me get more money? Remember, the goal is to achieve Financial Liberty, not to make as much money as possible. If we hold onto our money with a closed fist, then eventually we become slaves to our money, and that is the opposite of Financial Liberty. Most of us have met or heard of a greedy rich person at some point. Don’t be that guy.
Lastly, by being generous, we can work together to foster a culture of volunteerism, and help others break away from dependence on the state to meet their needs. Ultimately, by achieving Financial Liberty in our own lives and helping others achieve it in theirs, we can eventually put the government out of business, and that’s a future I’m excited to think about.