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How to get better with money — period.
By Jordan Gray — Last updated on Nov 02, 2023
The majority of the world lives paycheck to paycheck with little to no savings in the bank.
Imagine waking up in the morning with zero debt. Imagine never having to worry about how you are going to pay for your rent/mortgage/groceries ever again. Imagine waking up with hundreds of thousands of dollars in your bank account. It’s all possible.
Depending on your current situation, it might take a lot of work and sacrifice, but, ultimately, money is a game. And if you don’t know the rules, then the game is probably playing you.
And (I know that it’s not the best writing to start a sentence with "and," especially two in a row, but...) if you are fortunate enough to be able to access the internet and be reading this article, then guess what? You are in the luckiest percentile of humans that have ever existed and you have more control over your financial reality than essentially all of the humans who have come before you.
Regardless of your current situation, the following seven steps will help you get to a place of financial freedom sooner than anything else.
Here are 7 steps to gain financial freedom, save for the future, and get out of debt:
1. Write down your current fixed expenses
You can’t navigate the stormy seas toward financial freedom if you don’t have your finger on the pulse of your current financial situation.
Write down all of your fixed expenses, so they’re staring you right in the face. Rent/mortgage, property taxes, groceries, restaurants, gym membership, medication, clothing, Netflix, Spotify, Tinder Plus — write it all down.
Once you have all of your fixed/monthly/recurring expenses, right there on the page in front of you...
2. Question the necessity of your recurring charges
Question every expense that you are currently paying, so that, ultimately, you can save more of what you are making.
Do you need to be spending that much on rent or could you be a bit less fancy and live in a less expensive place for a few years? Do you have to go to a nice gym or could you buy your own exercise equipment and save $1,000/year? Do you need to eat out as much as you do, or could you save money by making yourself your own meals more often? Do you need to have your own Netflix account or could you split a family plan with someone?
In this step, you want to question both the size of each expense (could your rent/phone bill be minimized by some new decisions?) and the necessity of each one. For example, do you need to spend $100/month on a gym membership when you could buy $200 worth of gym gear and work out from home?
The more you can minimize your recurring expenses, the more money you will have at your disposal.
3. Pay off any debts, in order of interest rate
Not all debt is created equal. For example, credit card debt from your late-night shopping addiction is very different from the mortgage that you have (because the latter builds equity, whereas the former is like throwing your cash into a dumpster fire).
If you have debt that you are working at paying off, make paying it off one of your life’s highest priorities. Just like compound interest works in your favor when you are investing money into a high-earning savings account, compound interest also works against you when have debt accumulated. The fire that warms you can also burn you.
Pay your debts off in the order of the interest rate on them. In other words, if you have a credit card that charges you 19 percent interest and another that charges you 5 percent interest, pay off the 19 percent credit card first so that you don’t just end up paying a ton of extra money paying off interest while barely chipping away at the principal amount.
When you have debt, become aware and disciplined enough that you have such a tight action plan for paying off your debt that you can name the exact date that you will have paid your debt off.
If doing the math of this hurts your brain too much to figure out (many people enter a fog when the money talk comes out, which is understandable) then go to your bank and ask to speak to a financial advisor so you can get a concrete action plan to pay off your debt in a timely manner.
4. Create an emergency fund
Once all of your debt is paid off, the next step up the ladder toward financial freedom is to build up your emergency fund. At a minimum, your emergency fund should be $1,000 that you stash away in a savings account (that you can name ‘Do Not Touch’) for legitimate emergencies only. And, in case it’s unclear, beers with friends do not qualify as an emergency, no matter how much community matters to you.
After that, do what it takes to slowly grow your emergency fund so that you are sitting on $20,000-$30,000 (or whatever six months of living expenses look like for you), so you can be prepared for anything that could come up.
Life happens. You might need a new set of tires for your car. Or, maybe you get sick and have to take a full month off from work. Whatever comes up, you’ll be prepared. After you have six months of savings, build up twelve months of savings. When you are at that level, you should start looking more seriously into investing your excess cash flow into various investment accounts (401(k), IRA, RRSP, TFSA, GICs, etc.).
The point of the emergency fund is to not touch it. It’s there in case you need it, so it should be relatively liquid (a financial term that basically just means readily accessible), but ideally also accumulating interest over time.
5. Slowly integrate small sacrifices
Whether you’re looking to slowly phase out unproductive financial habits (ex. $8 iced coffee three times a day) or regularly contribute to a savings/investment account, the key is to go slowly.
Sure, some people benefit from the all-or-nothing, dive-right-in approach, and all the power to them. But your financial habits were formed over many years, so there’s a chance that it will take a bit of time to start relearning more helpful financial habits going forward.
If you’re used to eating out for all of your meals, start by just making your breakfasts at home. Or, if you’ve never put any money into a savings account, start by putting $20 into an investment account just to see what can happen when you integrate a small habit.
$20 might sound like a relatively insignificant amount of money, but if you invested $20 a week into a savings account, in 50 years you would have just under $700,000. So this stuff adds up over time.
6. Figure out ways to add more value to the world
Cutting down on your expenses and pinching pennies only gets you so far. At a certain point in your financial trajectory, it becomes much more productive to focus on how you can make more money, (and not getting stuck in the loop of continually obsessing over saving a high percentage of your low income).
Now, before you say, "But Jordan, we’re not all built to be entrepreneurs. I can’t just create extra revenue streams out of thin air!" I would challenge that line of thinking.
If you think about it, historically speaking, the option of not being at least somewhat self-employed is a relatively new concept. Before the industrialization of the West, where factories and major corporations sprang up and offered us employment, people had to largely fend for themselves. So when someone tells me that they don’t have a lick of entrepreneurial tendencies to lean on, but that they do want to make more money happen in their lives, well, I call them out.
Besides all of that, when you look at it in the context of human history, the amount of opportunity that we all have now at our fingertips is truly unparalleled.
You can upgrade your skills and abilities (for many professions) for free by studying in local libraries, searching it up on YouTube or Google, and using readily available online resources. You can even take free courses from Stanford and Harvard online. You can also use the internet to create revenue streams (selling physical products, digital products, or services) in a matter of minutes. The tools have never been more readily available.
You can’t increase the number of hours that you have in a day, but you can always increase the amount of value that you can add to the world per hour. Value is what makes the world go round. Stop thinking about money, start thinking about value.
7. Put all of your non-essential money into a savings account/retirement fund that utilizes compound interest
Now that you’re in touch with your essential monthly expenses, and you also have a sense of how much money you’re bringing in on a monthly basis, your next task is to allocate the highest percentage of your money possible into a savings/investment account that utilizes the magic of compound interest.
For the uninitiated, compound interest is just a fancy way of saying your invested money makes money, and then your bonus and the bonus money that you made also make money. And on and on forever.
Over time, compound interest works wonders for your overall savings. This isn’t 1+1=2. But rather, it’s closer to 1+1=11.
Here are a few quick examples, just to show you how powerful this stuff is.
- Let's say that you have $100,000 in savings, and you want to buy a house in 10 years. You decide that you can invest $3,000/month into your savings account to work towards your goal of becoming a homeowner. If you invest in an account that gives you an average of 8 percent returns year over year, at the end of that 10-year period, you will have saved/earned $770,802.13 (which is over $310,000 in accumulated interest, AKA bonus money).
- You’re 20 years old, and you plan on always making a more modest income because working feverishly to make a lot of annual income doesn’t really appeal to your values. Fair enough! If you put away just $20 a week for 50 years, by the time you fully retire at 70 years old, you will have saved/earned $690,254.15. More than enough money to live on for the remainder of your years (since you only take out a portion of that money per year, while the majority of that money continues to make interest for you).
You get the picture. Stashing your savings away pays off, especially if you’re someone who prefers to not be super active in managing (i.e., day trading, playing the stock market) their money.
Personally, I have a good percentage of my savings stashed away in a robo-advisor called WealthSimple. This calendar year, my portfolio has averaged 14 percent returns, and the previous two years were between 8-10 percent, so it has been doing really well for me.
The long story short of it all is this: live humbly, add a lot of value to the world, and put your money to work for you. That’s the whole secret. When you go from seeing money as a thing to buy stuff with, to seeing each dollar as a seed that can grow into a money tree that creates more money, then you’re already on the path to increased financial freedom.
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Jordan Gray is a five-time #1 Amazon best-selling author, public speaker, and relationship coach with more than a decade of practice behind him. His work has been featured in The New York Times, BBC, Forbes, The Huffington Post, and more.
This article was originally published at Jordan Gray Consulting. Reprinted with permission from the author.