How I Went From Broke to Financial Freedom in 5 Years, and Why Everyone Can Achieve This Type of Success
Every consumer has their own perception of what financial freedom entails, but the simple fact of the matter is that it does not take millions of dollars to build a successful lifestyle. Being financially sound and fiscally responsible is precisely what has protected some families and helped them weather these tough economic times. While it may be hard for an individual that is currently living a paycheck to paycheck lifestyle to imagine a life without a heavy debt load, the following steps are exactly what I followed to drag myself from broke to comfortable in less than 5 years.
Although it seems to be a basic component of any budgeting effort, a consumer really needs to spend much more attention focusing on their expenses. Most individuals truly have no idea what their costs on a monthly basis actually are, and simply tracking these can go along way towards achieving a less stressful lifestyle. The first step is to list all fixed expenses on a sheet of paper, and these must include housing, installment debt payments, and anything that cannot be considered variable. If an expense can change from month to month, such as a utility bill or revolving debt payment, it needs to be listed under variable expenses. It is important to realize the difference between the two, and the budget will focus on ways to reduce the costs that are not categorized as fixed. Occasionally an individual will realize that their fixed costs are way too high, such as the case with a homeowner that cannot afford their mortgage, but most consumers can fix their spending without making major changes in this area.
Reducing spending in the variable expense category is the easiest way to free up more cash for savings and debt repayments, and it is actually much less painless than most people believe. Tracking every single expenditure in a month is the best way to reveal where the money is actually being spent, and the results will most likely be shocking. Even eating lunch out every day can add up to a staggering $200 per month or more, and it is costs like these that few people have ever counted when forming their budget. Disconnecting the cable television package saved me over $100 a month, which certainly helped start a savings account. A consumer needs to not only reduce their spending, but also must be creative in finding ways to save money as well. Clipping coupons may not seem worth it to some individuals, but statistics have proven that the average family can save almost $80 a month on their normal grocery items without spending a great deal of time or effort. This can equate to nearly $1000 a year that could be placed in savings or used to pay off debt.
After an individual has figured out exactly what they must spend on a monthly basis and what areas they can trim, the next step is to analyze their income. While this may be simple for a person that can count on their salary, it is much more difficult for commission-based employees and those that receive variable amounts of overtime. Now that a person knows how much money they need, their income will reveal whether or not they will have any left over at the end of the month. If the answer is no, or even if the answer is that there will only be a little left, the logical focus becomes increasing the money coming into the household. A part-time job helped provide me with extra money to pay on credit cards, and when they were paid off I continued working extra hours until I had a reserve fund set up to help with unexpected emergencies. It is easy to get caught up in the "get rich quick" schemes, but the truth of the matter is that many of these will only prove to be a major setback and cost much more money than they will ever produce.
The next step in achieving financial freedom is to create a debt repayment and savings plan, and this can only be accomplished after figuring out exactly how much money can be allocated every month. Every single debt should be listed along with the interest rate, balance, and minimum payment required. A consumer simply needs to strive to pay twice the minimum payment on each revolving debt, and pay even more on the most expensive one with the highest interest rate. It will be encouraging to watch each balance decrease with the most progress being made on the worst one. While focusing on getting rid of debt is important, it is also necessary to set money aside for future goals and unexpected emergencies. Any extra money after expenses can be split with some going towards debt and the other going towards savings. I used a ratio of 70% to debt and 30% to savings.
All the "wonder programs" that suggest that it is possible to get out of debt within a matter of days are only going to create more angst and stress for an individual when they discover that they have wasted time and money. It takes dedication and persistence, but a person can truly experience financial freedom in five years or less.