Blog: Simplify Your Life
Ten Steps To Financial Freedom -- Part 2
Pay Off Your Debts -- Now!Your first priority on the road to financial independence should be to become debt-free. Loans and credit cards carry ridiculously high interest fees -- and if all you do is pay the minimum, you will never dig yourself out of that hole. You might think it's smarter to put money away for a rainy day, but it's unlikely that your investments are earning anywhere near the interest rate on your liabilities -- so no matter how much you scrimp and save, you still end up at a loss. If you want to be free of this particular financial yoke, it's time for drastic measures. You might consider suspending your investments and taking a break from putting away money in savings -- just temporarily. At the same time, eliminate as many of those "luxury" expenses as you can manage for a few months (it hurts less to really tighten your belt if it's only for a limited time!) Then focus all of your financial energies on paying off your debts. Plan to knock out the highest interest debt first, then move to the next highest and the next, until you have cleared them all out. No excuses, no rationalizations, just do it!
Use Credit Cards JudiciouslyLet's face it -- most people use charge cards not to build credit, but to buy things that they can't afford at the present time. However, you are taking a big risk when you assume that you will be able to pay these purchases off at some point in the future. What if the economy tanks or you lose your job? And if you can commit to paying off a debt (plus interest) after the purchase, why can't you save the money ahead of time? It will cost less in the long run -- and you might even earn a little money as your cash accumulates interest in the bank! Know that I am not diametrically opposed to the use of credit cards -- they can be a terrific way to simplify bill-paying and keep track of your expenses. Not to mention the fact that purchasing your basic necessities (groceries, gas, etc.) with a charge card is a fabulous way to build good credit (and make a little money on your spending with a cash-back reward!) But you have to pay your entire balance off each month -- otherwise you are simply flushing money down the toilet on interest fees.
Reduce Your Monthly ExpensesNow we get into the real meat and potatoes of becoming financially free -- deciding which expenses are necessary and which are simply wasting your extra money. I'm not just talking about cutting back on the number of times you eat out each week or how much you spend on your vacations. In order to really trim the fat from your budget, take a good hard look at those expenses you've always thought were unchangeable. Is it really necessary that you and your wife and one child live in 10,000 square feet of space? And if you had to make a choice between the house and not having to work 80 hours a week (or not having to work at all), which would be more important to you? Can you get by with one car? Would your vacations be just as pleasurable if you flew coach or stayed in a 3-star hotel? We get accustomed to demanding the very best because we feel that we deserve to be pampered after all of our hard work. But if we didn't pamper ourselves so much, we might not have to work so hard in the first place.
Set Up An Emergency AccountWhat kinds of expenses tend to throw off our budgets and cause us to rack up unwanted credit card debt? The unexpected kind! Think about all the times you've had a car repair or medical bill or other expense creep up on you when you didn't have any cash on hand. And what happens when the economy tanks and you are "downsized" out of a job -- what will you live off of? The solution is easy -- set up an emergency savings account to cover you when disaster strikes. You should put away at least 6 months worth of income -- a year is even better -- so you have something to fall back on. Of course, this kind of saving comes after you have paid off all of your debts -- just start taking the money you were putting toward credit cards and loans and begin socking it away in the bank. And remember, the money in this "rainy day fund" is only for emergencies -- if you want to take a vacation or buy a new stereo system, set up a separate savings account for purchases.
Develop The Investing HabitThe final step in achieving financial independence is to really (and I mean REALLY) put money away for your future. If you want to get to a point where you don't have to work and can still live comfortably, whether you expect that to happen at 45 or 65 -- you must start planning for it as soon as possible. There's this great little invention out there called "compound interest" that allows you to earn money not only on what you have invested, but also on the interest you've earned in past years. This is the easiest way to geometrically increase your earnings -- but it only works only if you follow three basic rules:
- First, invest regularly -- putting a set amount of money aside each month for your future. Don't just invest when you have some extra cash laying around -- rearrange your expenses so you can always afford to "pay yourself first." You'll thank yourself for setting up this habit later.
- Second, don't attempt to time the stock market, putting money in when prices are low and yanking it back out again when they are high -- you'll end up losing out in the long run. Plan instead to invest for the long-run. No matter how things appear today, you need the patience to see farther into the future. Over any given 20-year period, long-term investors always end up making money -- regardless of dips and plunges in the stock market. Remember that over the last 75 years, the stock market has seen an average gain of 10% per year (even with several recessions thrown in) -- not bad, when you look at the big picture.
- Finally, diversify. The people who lose serious money when investing are the ones who put all of their eggs in one basket, sinking everything they own into a single company. As we've seen in recent years, even the "sure thing" stocks can go down in a bad market. But by spreading your money around (lots of different industries, different sized companies, foreign and domestic investments, real estate, stocks, bonds, etc.) -- you protect yourself against major losses down the road.
I leave you with one final thought -- it's never too late to get your finances in order. And the sooner you begin, the sooner you will be able to live without the burden of debt or fear about the future -- the sooner you will achieve financial freedom!
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posted on: 3/30/2010 11:30:00 AM by Ramona Creel
category: General Organizing Tips
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Simplify Your Life
by Ramona Creel
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I have been a Professional Organizer for more than 10 years, I am a NAPO Golden Circle member, and I was the original founder of OnlineOrganizing. I have worked one-on-one with scores of clients and have trained dozens of newbie organizers as they got started in the industry. I provide both hands-on and virtual coaching to help clients improve their organizing skills and simplify their lives. I invite you to visit my website at http://www.RamonaCreel.com, and I challenge you to find one new idea that you can put into practice in your life, to help you become better organized, starting TODAY! I am passionate about coaching folks toward a more balanced, productive, and enjoyable life -- and I firmly believe that if I can do it, so can you!
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