When you think about organization, we tend to imagine tidy spaces such as offices, kitchens and bedrooms. But what if I told you one can take the concept of tidying and apply it to finances? It is true, organizing your finances will help you become more aware of your habits, and you will learn to become more intentional about your purchases. Becoming financially independent means getting off the hamster wheel and living life on your own terms. Here are six steps to take toward your financial independence journey.

1. Envision your Ideal Lifestyle

Really think about what you value in life, what your passions are and what people are most important to you. Where would you like to live if money was not an issue and what would you be doing for a vocation or in your free time? What does financial independence mean to you? This answer is different for everyone, so really take some time to think about what you imagine for yourself (and your family if you have one). Creating a vision board often helps to visualize and manifest these desires and remind our subconscious about our goals to stay motivated.

2. Create a $1000 Emergency fund

To make sure you have money for an unpredictable emergency such as being able to fix a flat tire on your car or an unexpected medical bill, it is most important to create an emergency fund. This is money you have in your savings account that is available to you only for emergency use.

3. Pay off all your consumer debt

It would be ideal to pay off your highest interest ticket items first to save the most amount of money on interest payments. The way to pay off your consumer debt when you have multiple credit cards or car payments is to create a budget. Calculate your base cost of living which includes housing, utilities, groceries, transportation costs, childcare, insurance etc. Cut out as many optional costs as possible for example memberships, subscriptions, cable TV and eating out, and add this extra money to your monthly debt payments to speed up your debt recovery. Another solution is the debt snowball method; Dave Ramsey suggests paying off your smallest debt first and make minimum payments on all other debts. Once the smallest debt is paid off, the second smallest debt is paid off with the original payment plus everything extra one can throw at it. This is a psychological strategy of positive feedback. It feels great to have a quick success by paying off the smallest debt first. This will help keep you motivated until all debt is paid off.

4. Build a 3-month emergency fund

Now that you do not have consumer debt it is important to create a 3-6 months emergency buffer for your living expenses. If you or your spouse loses their job due to unseen circumstances (like we have seen with COVID last year) it is important to be able to pay living expenses for a couple of months until recovery from illness, finding a new job or have readjusted living situations.

5. Invest and create wealth

Now that you are debt-free and have a stable emergency fund it is time to invest. Learn how to invest in stocks, real estate, and yourself. Personal development is priceless and building a successful business or career only helps you become financially independent in the long run. Make friends or look for mentors that are on the path to financial independence themselves or have already obtained it. There is nothing better than a supportive community that you can ask for advice.

6. Give and change the world

You don’t have to wait until step six to give, you could have a budget for donations to your favorite charities, but once you create wealth and are financially independent, you have the power to make a real difference for an organization by giving money for social service purposes, medical research, or innovative technologies.

Blog

How to organize your finances