What is the First Step to Financial Freedom?
Today we are going to do a high-level overview of the ten steps needed to reach financial freedom.
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Step One is to Save One Month of Living Expenses
There is your answer, but how much is that?
The best way to calculate this is to go back through your previous transactions. Most likely this will be going through bank transactions and credit card statements. You will at a minimum want to look at the last 3 months, but the last 12 months would be ideal. Add up your expenses and find out what the average is from month to month.
Be aware that some of your bills might not be monthly. For example, taxes, insurance, and registration may get paid once or twice a year. These should be factored in for your one month living expense.
Creating a budget will give you a better chance of success.
While going through your expenses, you should categorize your expenses. These should be customized to your life, some examples of categories would be groceries, gas, medical, etc. This can be an eye-opening experience. Seeing how your money is spent can change your spending behaviors for the better.
Having the clarity of knowing your expenses will allow you to make goals on your spending. For example, if you realize you spend a lot of money at restaurants, you could cut back and see after every month if you are succeeding.
Complete this step and you are no longer paycheck-to-paycheck
Having one month of living expenses saved up will allow you a little bit of breathing room. You will no longer have to worry about bills being pulled and not having money in your account.
We recommend setting up your bills to pull at a date that works best for you. Most companies will allow you to pick which date they will pull your bills. We recommend having all your bills be paid out at the end of the month. This lets you see if you take a snapshot at the beginning of the month to see if you have enough saved.
This money should be saved in a checking account
Your one month living expenses should be saved in your checking account. We consider this your operating account. All of your bills get pulled from this account. All your paychecks go to this account. your operating account will fluctuate throughout the month, but when you look at the beginning of each month, you should be able to see if you have completed this step.