Updated: Apr 13, 2019
Hello Money Talkers! You have completed steps one through five, and you are now on step six, the last step to financial freedom, growing your wealth.
In order to be on step six, you MUST complete steps one through five. This means:
You must have your budget made. You have to stick to it. And do not forget to adjust it accordingly to accurately reflect your current income and expenses.
You must have your savings in order. At this point, you should have a fully funded emergency fund of six months worth of expenses saved. If god forbid you lost your job, cannot work or a large expense comes up then you are covered.
You must be debt free. You should have all of your debts paid off, excluding your mortgage because a mortgage is considered “good debt”.
You must contribute at least 15% of your earnings to your retirement.
You must contribute at least 15% of your earnings to your investments.
You are not financially free until all of these steps are completed and you must continue to keep up with them!
At this point, you are doing everything you are supposed to be doing. But could you be doing more? If you are already doing steps one through five and you still have a surplus in your monthly cash flow than what should you do with that money? Here are just a couple of possibilities of what you could do with your surplus monthly cash flow money.
I will begin with the most important thing you should do with your extra money. If you have children or plan on having children then I suggest you save money for your children’s future. You can start a separate savings account for them. You could start a separate investment account for them. You could even open up a 529 for them, which is a specialized savings account that is used to save money for college and may be used to pay for the college expenses and K-12 tuition of the beneficiary, tax-free. Whatever method you choose, saving for your children’s future should be priority number one after you get your own personal finances in order.
You could also use your surplus money to invest more. You can put that money into improving your home or business. You can put it in your high yield savings account. You could put your extra cash into your retirement account. You could invest that money in the stock market. You could even invest your extra money in real estate. The possibilities are endless! As long as you are growing your wealth whatever vehicle you use to do that is irrelevant.
Be philanthropic. This idea seems far fetched. “Oh, yes, let me just give my extra money away.” But if you are doing well financially, then why not spread the wealth? Find a charity that you interested in. Make sure that their interests match yours. Then start donating. Even if it’s just $20 a month. You have enough to spare… so give back! You can even write off charitable donations on your taxes. It does not even necessarily have to be to a charity. You could even give some money to your grandma to help out, buy your parents groceries, put money in a savings account for your siblings’ college tuition, anything really. You can even give knowledge. Once you reach your financial goals, help someone else get started on their own journey to financial freedom. Giving back can be a huge joy in your life and give you a sense of purpose, so why not?
You can treat yourself. If you do decide to treat yourself you need to budget for it. For instance, let’s say you want to treat yourself with a vacation to Italy. You have a surplus of $200 a month. You do your research and that trip should set you back $2,600. You negotiate, because your a BO$$, and bring the total down to $2,200. That means in 11 months you will have enough money to pay for your dream vacation to Italy in full. You can apply this same method to anything you plan on spending money on; anything! As long as you have accounted for it in your budget, you are still following the other steps to financial freedom, and you can save up the money to pay for it in full then you can afford it. I believe that it is ok to treat yourself every now and then. Sometimes people get so caught up in saving and making money that they do not enjoy it when they finally have it.
MONEY TIP: I just want to say that this is the point at which a lot of folks get comfortable. Do Not Get Complacent. You have all this money coming in, and it’s growing, and you have never experienced wealth like this before. It is very easy to get overwhelmed. You tell yourself you deserve this and you deserve that, but what you really deserve is to be financially free. Do not mean go ape #$%& crazy spending all of your hard earned money. That would defeat the whole purpose. You worked this hard so do not mess up what you have worked so hard to achieve.
Once you have completed steps one through six then CONGRATULATIONS, you are financially free! If you save enough you could even retire early. Just make sure you continue to stay on track and grow your wealth.
Stay tuned next Monday for the next blog post on Financial Frenemies :)