Most people seek financial freedom, but don’t know quite how to achieve it. In fact, in today’s new age of thinking, people are constantly looking for the easiest method of becoming financially free. And although there are newer tools and resources that can allow you to obtain financial freedom quicker, the four principles that lead to financial freedom have always been the same.
Pay Yourself First: When I first heard this principle, I was a little confused. Doesn’t my whole paycheck get paid to me? Absolutely not! The majority of the paycheck is often paid to others through me, such as the home mortgage, grocery stores, retail stores, taxes, etc. Often, after paying everyone else, there wouldn’t be anything left over for me to keep.
If you want to accumulate wealth, you must keep part of your income, instead of spending it all! George Clason, the author of The Richest Man in Babylon and the inspiration behind these four principles, suggests that you should pay yourself 10% of all you earn. I personally like to take a more aggressive approach by saving 20% of everything I make. The reason I like to be more aggressive is because I know that the more I pay myself, the more investable capital I have, the quicker I can become financially free.
Earn more than you spend: This can be a difficult one because we live in a world that has conditioned us to want everything right now, even when we can’t afford it. Banks and private lenders thrive on this concept, getting rich while the borrowers bury themselves in debt. Eventually, people accumulate so much debt that saving becomes nearly impossible because every dollar that comes in is pre-owed to someone else.
STOP IT!! This cycle ends now! As Jay Z says, “If you can’t afford to buy it twice then you can’t afford it at all.” This is not 100% accurate, but you get the point. Dave Ramsey speaks often about how much he hates debt on any level. When it comes to your personal financial budget and spending habits, Financial Peace University is an amazing resource that everyone should take the time to learn from.
Make your money make money: Now that you have saved some money from previous income, it is time to put that money to work! I am not a financial adviser, so I will not advise on how you invest your money. However, I will discuss the different avenues available to invest money and point you towards some resources that help you understand each investment avenue better.
You will often hear people say “invest in yourself,” typically referring to educating yourself, which I believe is very important, whether by schooling, self-taught and/or through life experiences. However, for this principle, the focus is on investments that directly produce passive income. There are three types of investments available:
1) Ownership investments: Stocks, businesses, precious metals & collectibles, and real estate.
2) Lending investments: Saving accounts & Bonds.
3) Cash investments: Money market funds
I will dive deeper into each of these investments in a later blog, but depending on your financial strategy — which I recommend getting a financial advisor to help you with — one of these investment options can possibly help you get to your financial goals.
Only listen to competent financial advice: Speaking of getting a financial advisor, don’t just get anyone to tell you how to spend your money! Make sure that you are only listening to advice from someone competent in financial investments and has a track record to prove it. Anyone can say they can help you reach your financial goals, however, without a track record of helping others reach the same goal or personal success in reaching that same goal, it’s really anyones guess where your financial situation will end up.
Also, notice that I said, “competent advisors” not “professional advisor”. Just because someone is considered a professional, doesn’t mean that they are competent! In every profession, there are people who are good at their job and others who are terrible at their job. Don’t be fooled by the title of “professional.”
Lastly, if in doubt, ask more questions! If an advisor cannot show you a plan that is easy for you to understand, then they do not know what they are talking about well enough to convey it simply. This should always be a red flag! Understand what you are investing in and demand that the advisor help you understand the game plan.