The Keys To Financial Freedom

1) Establish a Cash Budget

* Stop random monthly deficit spending – If you can’t pay cash then don’t buy it without carefully considering the long term budget effects of that purchase.

* Determine Minimum subsistence Budget including:

* Mandatory savings monthly of at least 5% of income- The truest way to achieve financial independence is to pay your self first, which is the benchmark of fiscal discipline. In a minimum subsistence budget this vital piece must be retained.

* Debt reduction monthly amount as aggressive as tolerable- based on the repositioning of debt & equities apply the maximum amount of money to this category as it is the single greatest limiting factor to your financial success.

* 5% of monthly income for recreation and life enjoyment currently (need to enjoy life) – Even in a minimum subsistence budget life is for the living and you must reward your self by celebrating your budget victories to maintain the discipline necessary long term.

* Defer purchases by practicing the two week rule- Do you really need_________? When considering a purchase in excess of 2% of your monthly income, take a time out for two weeks to carefully reflect on the advantages and disadvantages of that purchase, including if necessary the debt obligations that would result from the purchase.

2) Build A Cash Cushion

* Liquid account (emergency access)- savings at a bank

* Goal- at least 3 month’s living expense- not just your bills, but your cost to live monthly.

* This will keep you from borrowing for emergencies, cushion a loss of income due to layoff, loss of job or fund a much needed vacation without using credit cards.

* If you are self-employed, you should increase this reserve to 6 months living expense. (due to variations/cycles of income, additional expenses incurred vs. working for an employer or increase risk of loss of income over longer periods of time)

3) Get Out Of Debt

* Pay off all high Interest Rate Credit Cards, personal loans, revolving lines of credit, Car loans, etc… - in the order of highest to lowest interest cost. But Consider Consolidation.

* Maximize payment efficiency by improving credit scores first, pay down all accounts to less than 70 of the credit limit or raise the limit. Then reduce them to 50%, and so on so forth.

* Restructure your mortgage or home equity if it makes sense as these are generally the lowest cost of financing and are the best methods to gain substantial tax advantage and improve cash flow. However be careful to stick to the budget. People who consolidate and don’t follow a plan like this 6 step plan, often end up back in the same situation again 1 year later due to old habits of using debt for purchases.

* If a mortgage or home equity restructure is determined by a mortgage planner to not make sense, then start with the highest interest rate account first- apply your full available resource to the debts one at a time, & then once the account is paid off, go to the next highest account.

* Be strategic about the use of your money and conquer one objective at a time. The account will disappear much faster if the maximum amount of resource is applied to each account 1 at a time.

4) Accelerate Financial development

* Meet with a financial advisor for an initial meeting discussing the 4 steps and a short and long term plan for investing for future income and growth.

* What would it take monthly (or in lump sum combination) to reach the level you need by the year you retire? Ask the financial advisor to consider the various vehicles that will allow for tax favored investing in the different stages considering your 4 step plan and the future potential of increased equity in your home at your disposal.

* Find ways to keep your money in your control, liquid and safe- then consider the various rates of return associated with the risk level that fits your overall plan and profile.

* Seek to understand the financial advisors advice and make sure it is something that you can do that fits your overall plan and family habits, disciplines, and objectives.

5) Pay Off Mortgage (on paper at least)

* This should be the last thing you consider while you are earning income. For the simple reasons of building cash flow, keeping your money in your control, investing, growing your money for future needs, and gaining the maximum tax advantages to offset taxes on earnings.

* Learn ways to strategically position yourself in the best mortgage plans that allow for maximum cash flow monthly.

* In addition, borrowing strategically as your home grows equity will keep more money at your disposal and in your control and leave you less vulnerable to lenders vs. when you borrow only during hardship.

* Reposition/ rebalance your debt and asset portfolio as appropriate to take the greatest advantage of market opportunities as they surface.

* Too many people look at their mortgage as a liability rather than an asset- and focus only on paying off their home by the time they retire rather than investing the growing equity in a side fund- compounding substantially while in the mortgage.

6) Achieve True Financial Independence

* Manage and build your wealth to the point where you have amassed enough assets to generate a passive income stream adequate to meet your life style & cash Flow needs. Determine what this number is based on conversations with your team of financial advisors.

* Reposition/ rebalance your debt and asset portfolio as appropriate to take the greatest advantage of market opportunities as they occur.

* Use your passive income & cash flow to further enhance your wealth through continual cash flow debt & asset management.

Final thoughts……..

* For every use of your money- categorize it. For example, you have an extra $300 per month- what category does this money fit into if you paid it into your mortgage as extra principal? Category 4, right? Have you accomplished steps 1-3 yet? If not, it should not be going to your mortgage, it should go to the consumer debt or cash cushion.

* If anyone of these steps gets out of order, your goal should be to use monthly cash flow, go back to that step and focus on it until it is accomplished before moving on to any other step.

* Please ask me to further define these steps and help you develop a strategy customized to your family’s objectives, styles, and habits.

To Your Success- However You May Define It……