It’s time to start! Yeah you heard it. Now!
As I mentioned in previous post many of us exactly know what is necessary to become financial independent, but when it comes to make it , we seems to be a bit confused and lost. We don’t know how we supposed to start. No worries! In this article I’m going to show you 8 necessary steps that you have to take to even imagine to achieve your financial goals. No matter what they would be.
1. Know your net worth.
Understanding your financial net worth is one of the most important things that you’ll need to do as you work towards your Financial Independence.
This concept is important not just in your personal life but also in the life of your business if you run one.It is easy to think that you have it all in your head and you roughly know what this number is.Some people don’t even bother trying to calculate this because they feel they either have little to no assets or too many debts.
If you’re in any of these camps, this is exactly one of the reasons why you need to work out your financial net worth.
‘’Your net worth exists already whether you like it or not. Getting to know it and grow it is critical to your freedom.’’
Working out your net worth involves two broad things namely Assets and Liabilities. We can show it in simple equation:
Net worth = Assets – Liabilities
An Asset is anything that makes you money. They essentially help you generate financial wealth by working for you.
A Liability is anything that costs you money.
When your assets exceed your liabilities, then your net worth is in a positive net asset state. This is the place everyone should aim to be in. When your liabilities exceed your assets, then your net worth is in a negative net liability state.
2. Build Starter Emergency Fund
In second step, your goal is to save 1,000 GBP as fast as you can. Your emergency fund will cover those unexpected life events you can't plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt! If, after calculating your net worth, you realize that you already got that money, then great ! You are on the right path.
3. Get rid off bad debt.
Ok, but what exactly is that ‘’Bad Debt’’? Bad debt is a high interest liability that we need to pay to bank or private lender, like credit cards, overdrafts, consumer loans, car loans. I recommend to use very powerfull method, called ‘’The Debt Snowball’’. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest—regardless of interest rate – and pay off one by one.
4. Build Rainy Day Fund 3 to 6 months your expenses.
When you finally smash all of your unnecessary debts, you are ready to go further and build Rainy Day Fund. This will protect you against life’s bigger surprises, like the loss of a job or your car breaking down, without slipping back into debt. Take that money you were throwing at your debt and build a fully funded emergency fund that covers 3–9 months of your expenses. You have to decide with how many months you feel comfortable.
5. Invest between 15-20% of your household income for retirement.
It's time to get serious about retirement—no matter your age. Take between 15 and 20% of your gross household income and start investing it into your retirement pot. Start with your company’s pension plan and receive the full employer match. Invest the rest into ISA Stocks&Shares account(basically tax exempt brokerage account in your country)—one for you and one for your spouse (if you’re married). I will share with you information in next articles which way of investing I recommend and for whom. I am goinga give you the best products actual exist on UK market with all pros & cons.
6. Save for your children’s college fund.
Another thing you need to tick off on your list is your kids future. Education is very expensive. You know that, right? You love your kids more than anything in this world, so you want to give them the best possible opportunity to gain exceptional skills and qualification to get high payable jobs or establish their own companies, which can obviously lead to grow and go higher and higher in society ladder or to give them possibility to do what they truly love in life. You want them to be happy, right?
So, whether you like it or not, you need MONEY, to make that happen. You HAVE TO start save and invest(multiply) that savings to build BIG ENOUGH FUND for them when they turn 18 years old. I recommend to start as early as it possible, because TIME DOES MATTER to achieve that goal. Open Junior ISA or Child Trust Fund (which is better in my opinion, I will share with you later) or their equivalents in your country. Set your financial goal for that and direct debit to top up account each month certain amount of money. Depends on your investor profile, choose existing investing plan or build portfolio on your own, based on index funds, ETF’s and bonds. Why not individual stocks and how to do that ? Don’t worry I am gonna touch this problem too, so stay tunned.
7. Pay off your mortgage early.
Now, bring it all home. Step 7 is the big dog! Your mortgage is the only thing between you and complete freedom from debt. Can you imagine your life with no house payment? Any extra money you can put toward your mortgage could save you tens (or even hundreds) of thousands in interest.
Remember!
None of existing asset classes can give that big Return on Investment, like saved money on paid by you interests for loans, mortgage or credit cards.
So, toss them into trash!!! Set yourself free. Break the chains of debt completely. Make your mind free of worry and feel it. The fresh air of financial freedom. Having no debt will give peace of mind crucial to take the next step. It will protect you from stepping back and support your investment strategy.
8. Increase your income consistently – build multiple source of income – invest.
Finally step number 8! You know, you have done GODDAMN GOOD JOB when you get here!!! I am really proud of you!
You know what people with no debt can do? Anything they want! The last step is the most fun. You can live and give like no one else! Keep building wealth and become insanely generous. Leave an inheritance for your kids and their kids. Now, that's what we call leaving a legacy!
Nelson Mandela once said:
"It always seems impossible until it's done."
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Guys!
If you like my posts but you see something I could improve or you have some interesting tips and hints, please do not hesitate and give me a comment. I am open on constructive critic and any advice.
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Have a fantastic and prosperous day!