Financial Freedom Checklist

If you are just starting your journey to financial independence there is a short checklist of items that are needed as you go out on this adventure, to ensure that you reach the goal of freedom quickly and safely:

1) Start the Budget.

Get a map of your expenses and savings ASAP. Where is all the money going, and how can the leaks be plugged? The big question is what can you do to ramp up your savings and get to savings rates of 50% or even higher?

2) Eliminate All Consumer Debt

Getting rid of you consumer/toxic debt is quickly as possible is such an important focus that it should be one of the first things to spend your energy and efforts one. Do you have a car loan, student loan, or perhaps debts on your credit card that you cannot pay off in one month, and/or a high interest loan? If so, what can you do to get rid of these? Sell some of your stuff that you are not using, maybe even sell the car and get a more frugal model instead, or even better, get rid of it completely and take public transport or bike to where you need to go.

3) Build an Emergency Fund

In the current job climate it is good to build an emergency fund as soon as possible, so as to ensure that you can transition between jobs without getting into large amounts of debt on a credit card or another form of loan with a high interest. How much should you save is always been a matter of significant debate, but probably 3 months minimum, 6 months is even better, and if you can, why not a year’s worth? If you have the latter, it can be spread around various liquid investments, and so not just sitting in a savings account and slowly depreciating.

4) Contribute to your Retirement Plans

Contributing to your retirement plans allows your money to be deposited tax-free and then grow tax-free for decades before being taken out and then taxed at what is hopefully at a lower tax rate than your current rate while you are still working. How much should you contribute? The minimum is the amount needed to get the match from your employer, which is essentially getting free money. After that, a good aim is to try and max out your 401k/403b and even an IRA (or ROTH IRA) after that, effectively lowering your taxable salary while rapidly building savings. In 2014, you can put away $17,500 for the 401/403 and $5,500 for the IRA, so that’s lowering your taxable salary by $23,000. Continuing to invest that amount and getting a 10% return for 10 years will build up the savings to close to $400,000.

5) Get the Career Moving

Make sure that you have a plan for the next 1, 2, 5 and 10 years if possible. Yes, lots of things can change, and you don’t want to be closed to new opportunities, but at the same time you want to keep that career moving, getting to hopefully better paid, lower stress and more enjoyable jobs. Also, being asked what are your near and long-term career goals is a very common question in job interviews, and so being able to give a clear answer will only improve your chances of being hired.