Simple Steps to Financial Freedom
Summary
TLDRThis script outlines a step-by-step guide to achieving financial freedom, emphasizing the importance of creating a cash flow, building an emergency fund, mastering credit card usage, eliminating debt, and investing in tax-advantaged retirement accounts. It encourages viewers to enjoy the journey to financial independence, balancing current joys with future financial goals.
Takeaways
- 💼 **Create Cash Flow**: Start by generating income from a job, side hustle, or business to cover your basic needs and have surplus for financial goals.
- 💰 **Value Creation**: Enhance your earning power by increasing your value to your employer or customers and negotiating for higher pay.
- 🏦 **Emergency Fund**: Build a starter emergency fund of $2,000 to avoid living paycheck to paycheck and to cover unexpected expenses.
- 💳 **Master Credit Cards**: Avoid credit card debt which can hinder financial freedom; pay more than the minimum and aim to pay off the balance.
- 💲 **Full Emergency Fund**: Progress to a full emergency fund covering 3-6 months of living expenses for financial security and peace of mind.
- 📈 **Invest in Retirement Accounts**: Open and fund retirement accounts like 401K or Roth IRA to take advantage of tax benefits and grow your wealth.
- 🚫 **Debt Freedom**: Prioritize paying off all debts except mortgage to free up cash flow and feel the psychological benefits of being debt-free.
- 💎 **Maximize Retirement Accounts**: Contribute the maximum amount to your retirement accounts to accelerate your path to financial freedom.
- 🏡 **Avoid New Debt**: Refrain from taking on new debt, especially for depreciating assets like cars; save up to buy used cars in cash.
- 🌟 **Enjoy the Journey**: Financial freedom is a journey; balance saving and investing with enjoying life now, it's not just about a future destination.
Q & A
What is the first step towards achieving Financial Freedom according to the script?
-The first step towards achieving Financial Freedom is creating a source of income, often referred to as 'Cash C', which provides enough cash flow to cover subsistence needs and have a surplus to put towards financial goals.
How does one increase their income as suggested in the script?
-To increase income, one should focus on providing more value and then asking to be paid for that value. This could involve increasing skills, taking on more projects, gaining experience, expanding networks, and negotiating for higher pay.
What is the significance of creating a cash cow in the context of Financial Freedom?
-Creating a cash cow refers to establishing a business or income stream that generates consistent and substantial profits. It's essential for Financial Freedom as it provides the necessary funds to cover living expenses and contribute to financial goals without constant work.
Why is building a starter emergency fund recommended in the script?
-Building a starter emergency fund of $2,000 is recommended to break the cycle of living paycheck to paycheck. It provides a financial cushion for unexpected expenses without resorting to credit card debt.
How does mastering credit cards play a role in achieving Financial Freedom?
-Mastering credit cards involves using them wisely to avoid high-interest debt. It's crucial for Financial Freedom because credit card debt can significantly hinder one's progress towards financial goals.
What is the recommended approach to handle credit card debt as per the script?
-The script suggests stopping the use of credit cards temporarily, strategizing to find extra money to pay off the balance, and focusing on a short-term sprint to pay off the debt as quickly as possible.
Why is it important to build a full emergency fund according to the script?
-A full emergency fund, typically 3 to 6 months of living expenses, provides financial security and the freedom to leave a toxic job or handle unexpected life events without financial stress.
What are the benefits of investing in tax-advantaged retirement accounts as mentioned in the script?
-Investing in tax-advantaged retirement accounts allows for tax-deductible contributions, tax-free growth, and potentially tax-free withdrawals in retirement, which can significantly reduce lifetime tax bills and accelerate the path to Financial Freedom.
Why should one consider paying off all debts except for the mortgage?
-Paying off all debts except for the mortgage is important because it reduces financial obligations and increases monthly cash flow, which can be directed towards investments and further financial goals, thus speeding up the journey to Financial Freedom.
How does the script define Financial Freedom?
-The script defines Financial Freedom as a journey rather than a fixed destination. It's about having the option to pursue passions, take care of loved ones, and live without the necessity of working for money, all while maintaining a balance between enjoying life now and preparing for the future.
Outlines
💼 Building a Cash Cow for Financial Freedom
The speaker begins by emphasizing the importance of financial freedom and how it can be achieved by breaking it down into manageable steps. The first step is to create a source of income, or a 'cash cow', which can be a job, side hustle, or business. The goal is to generate enough cash flow to cover basic needs and have a surplus to put towards financial goals. The speaker challenges the notion that some people are not good at earning money, suggesting that earning money is a skill that can be learned. To increase income, one should focus on providing more value and negotiating for higher pay. The speaker also advises on choosing the right business model for a side hustle, recommending scalable online businesses over traditional brick-and-mortar businesses.
💳 Mastering Credit Cards and Building an Emergency Fund
The second paragraph focuses on the importance of mastering credit card use to avoid debt and interest payments. The speaker suggests temporarily stopping the use of credit cards to prevent further debt and strategizing ways to pay off existing balances. The goal is to build a starter emergency fund of $2,000, which is more than the average emergency expense. This fund helps break the cycle of living paycheck to paycheck and allows for 'aging' money in the bank. The speaker also recommends opening a high-yield savings account to keep this fund separate from everyday spending and to earn interest.
💹 Investing in Retirement Accounts and Becoming Debt-Free
The third paragraph discusses the next steps towards financial freedom, which include opening and funding retirement accounts, such as a 401k or a Roth IRA, to take advantage of tax savings. The speaker highlights the benefits of employer matches in 401k plans and the tax-free growth potential of Roth IRAs. The paragraph also addresses the need to pay off all other debts, except for mortgages, to achieve true financial freedom. The speaker advises against taking on new debt, especially for depreciating assets like cars, and suggests saving up to buy used cars in cash.
🚀 Maximizing Retirement Accounts and Enjoying the Journey
The final paragraph emphasizes the importance of maximizing contributions to all available retirement accounts, such as 401k, Roth IRA, and others, to build a strong financial foundation for the future. The speaker also introduces the concept of a 'Financial Freedom starter kit' to guide viewers on which accounts to open and how to invest in them. The paragraph concludes with a reminder that financial freedom is a journey, not a destination, and encourages viewers to enjoy the process, maintain a balance between saving for the future and enjoying life now, and to not feel guilty about spending on small joys.
Mindmap
Keywords
💡Financial Freedom
💡Cash Flow
💡Income
💡Passive Income
💡Emergency Fund
💡Credit Card Debt
💡Investing
💡Debt-Free
💡Retirement Accounts
💡Tax-Advantaged
💡Mortgage
Highlights
Achieving Financial Freedom is simple if you take it one step at a time.
Financial Freedom allows you to pursue passions and take care of loved ones without work being mandatory.
Step Zero is creating a source of income to cover subsistence needs and have surplus for financial goals.
Earning money is a skill that can be learned by providing value and asking for appropriate compensation.
To increase income, improve skills, take on more projects, gain experience, and network.
Negotiate for pay raises regularly to reflect the value you bring to your company.
If you're entrepreneurial, choose scalable business models with high profit margins.
The first financial goal is to save $2,000 in a high-yield savings account for emergencies.
Having an emergency fund allows you to avoid living paycheck to paycheck and covers unexpected expenses.
Mastering credit cards is crucial for Financial Freedom; avoid carrying credit card debt.
To eliminate credit card debt, stop using cards, find extra money to pay off the balance, and focus on a short-term goal.
Building a full emergency fund of 3-6 months of living expenses provides job security and peace of mind.
Investing in tax-advantaged retirement accounts is a smart way to grow wealth for Financial Freedom.
401K and Roth IRA are popular retirement accounts that offer tax benefits.
If self-employed, consider a solo 401k or SEP IRA for retirement savings with high contribution limits.
Invest the money in your retirement accounts wisely to maximize growth.
Paying off all debt except for the mortgage is essential for true Financial Freedom.
Avoid taking on new debt, especially for depreciating assets like new cars.
Max out all retirement accounts and invest surplus money to accelerate Financial Freedom.
Financial Freedom is a journey, not a destination; enjoy the process and maintain a balance.
Transcripts
look I see you you work hard you did
everything that by Society standards you
thought you were supposed to do yet you
wonder if there's more to life than just
working to pay the bills a life where
work is optional you are free to pursue
your passions and you're able to take
amazing care of the ones that you love
although schools won't teach you
anything about this it turns out
achieving Financial Freedom is actually
simple like anything big in life if you
just take it one step at a time you can
get there these are the simple steps
that I took to reach Financial Freedom
in my 30s each step Builds on the other
and if you miss one step or do things
out of order Financial Freedom could
take you a lot longer than it needs to
so without further Ado let's start with
step zero that's right we have to start
at ground level which is to create what
I call your cash C achieving any
Financial goal first starts with having
money to put towards them that's why you
need to create a source of income
whether it's your career your job your
paycheck or a side hustle or a business
that you start bottom line is you need
need something that brings in enough
cash flow to cover not only your
subsistence needs but even extra you
need to have a surplus to put towards
your financial goals and get ahead now a
lot of times I hear people say things
like I suck at earning money I'm not
good at making money I I'm in a career
that doesn't pay a lot this is where you
really need to kind of challenge
yourself earning money earning lots of
it it's a skill like any other skill
this skill can be learned so just
breaking it down for you if you want to
earn more money you need to provide
provide more value and then ask to get
paid for the value that you're bringing
those are the two equations I really
want you to focus on this because like I
said this is Step Zero you can't really
accomplish anything else until you have
some Surplus from a cash C so if you're
working at a job find out how you can
increase your skills volunteer to take
on more projects to get more experience
expand your network and then negotiate
hard for your pay every single year if
not every quarter you need to sit down
with your manager and show them the
value that you've brought to the company
and then keep asking for more pay to to
compensate you and if you're not
bringing value to the company and you
don't feel like you deserve asking for a
raise then get yourself to a position
where you can ask for a raise where you
feel absolutely entitled to a raise if
you just bring the value you become
someone of value then the money is going
to come that's how it works so that's if
you're working at a company if you want
to go to entrepreneurship route you got
to also create your cash cow pick the
right business model pick a business
model such as online businesses that are
scalable e-commerce digital products
that have really high profit margins
don't get into a business such as a
brick-and-mortar business where it's
really hard to maintain large profit
margins and it's hard to scale you got
to create something that's going to be
your cash cow bottom line is whatever
your cash cow is you need one so that's
Step Zero now let's talk about step one
once you've got some Surplus money to
actually do something with the first
place to Route some of that extra cash
is towards building a starter emergency
fund we can't talk about financial fre
Freedom until we first have Financial
stability Financial Security and that
starts by having something of a cash
cushion that gets you out of the living
paycheck to paycheck cycle you want to
start having money in your bank account
that doesn't move it's the concept of
Aging your money if as soon as money
comes in and has to go right back out
the door towards expenses then your
money isn't Aging in your bank account
for very long whereas if you have money
sitting in there but you have so much
extra now you're starting to create more
financial cushion and this doesn't just
happen by accident you really need to
make it a goal so I want you to set a
goal to first save up just
$2,000 have $2,000 sitting in your
account that you never need to touch
better yet I recommend opening a high
yield savings account that is separate
from your everyday checking account
because these accounts pay high interest
and if it's not attached to your
everyday spending account you're less
likely to be tempted to dip into it and
the reason why I say start with $2,000
is because that is going to be more than
enough to cover the average emergency
expense which data shows is around
$1,400 so whether it's an emergency vet
visit for your cat an emergency car
repair or any other unexpected expense
this $2,000 cash cushion will be enough
to cover you so you can pay for it in
cash no stress and not have to get into
credit card debt for it and like I said
since every step Builds on the other the
benefit of starting with this step is
that it starts building your muscle of
saving it really is a muscle and since
$2,000 is not a large amount to save you
can get there relatively quickly get a
quick win and you're going to feel so
accomplished and good about yourself
that you're going to be super motivated
to tackle the rest of the steps to
Financial Freedom and that brings me to
The Next Step which is to master credit
cards according to a bank rate survey
over 50% of Americans are carrying
credit card debt and the total credit
card debt carried by Americans
collectively is over $1 trillion that's
the GDP of a small country so obviously
credit card debt is a huge huge obstacle
to Financial Freedom so before you move
any further you want to create a really
good relationship with credit cards like
straight up I love my credit cards I
love using them I don't think it's
necessary to completely cut credit cards
from your life and never use them I
think if used wisely they are actually a
great tool for Financial Freedom where
you can get a lot of free flights and
free things but you got to learn how to
beat credit card companies at their own
game don't let them get the better of
you so when you spend on a credit card
it might seem really convenient and then
just make the minimum payments but the
amount of interest that you pay is going
to be multiples more than the dollar
amount you originally put on your credit
card credit card companies don't want
you to know this they want you to just
enjoy the convenience and keep making
them tons and tons of money but check
this out let's say you bought something
for $1,000 on your credit card and if
you just make the minimum payments with
a 25% APR not only is it going to take
you more than 10 years to pay off that
balance but you're going to also have
paid over $1,400 in interest over that
period and that's on a $11,000 original
purchase and the numbers get even worse
the more you spend on a $10,000 credit
card balance not only will it take you
28 years to pay that off if you only do
the minimum payments but you will have
paid over
$144,000 in interest in that entire
period so you can quickly see why if you
don't Master credit cards Financial
Freedom is never going to happen for you
you just can't get ahead paying 25% so
here's my advice if you need some help
digging out of this credit card cycle
first I I want you to stop using credit
cards temporarily until you get a handle
on it it's best to just freeze that
credit card in a block of ice or even
cut it up and order a new one later but
the first step is to stop digging a
deeper hole then I want you to
strategize and think about how you can
hustle up extra money and really focus
on paying that balance down it's
incredible how much you can accomplish
if you just focus on one thing if you
make it a top priority to pay off that
credit card and you ask your brain every
night before you go to bed what are ways
I could come up with extra money to pay
off this credit card I guarantee you you
will see your balance go down quickly
and then I want you to just do a Sprint
just for like 30 days you could do
anything if it's temporary cut out all
discretionary expenses and put all of
your money towards paying off that
credit card by the end of this Sprint
your credit card balance will have gone
down quickly and you're going to be so
motivated to do another one it's really
all about focusing and keeping up your
motivation all right moving right along
to step three which is to build up a
full emergency fund this is when you
officially have what I like to call
you money just imagine this let's say
you're working at a job and the
environment is really toxic but you
can't leave because you need money next
month for rent but then what if you had
3 to 6 months worth of living expenses
in a high yield savings account that not
only paid you interest every month so it
was growing money on its money but it
was just set aside because and you don't
need to touch it but if you ever needed
the money it would be there for you
which would give you the freedom to say
goodbye to this toxic job quit give you
a month or two of Runway to find a new
job to take a mental health break or
whatever you need because you've got
money in the bank that in and of itself
is a measure of Financial Freedom so
this is where I want you to build on
step one where you saved up your starter
emergency fund of $2,000 now I want you
to build it up to
$10,200 some large amount that will
cover you for a minimum of three months
of living expenses just having this
money is going to give you so much peace
of mind whether you get sick whether you
get laid off you know you're going to be
okay and even though it might seem like
a large amount of money to you maybe
you've never had a five figureure
savings account balance but like I said
with Focus you can accomplish anything
and Financial Freedom like I said it's
steps that build on the other you don't
become a millionaire and you don't you
can't take shortcuts it first starts
with building the muscle of saving this
amount and then that amount and and a
bigger amount and a bigger and bigger
amount I'm so exced excited for you
because once you accomplish this and
you've got that money in the bank you
will never be the same you will not feel
the same way about your money it's going
to be so good for you okay next step now
you want to start putting your money to
work and doing it in a tax Savvy way
which is why step four is to open and
start funding retirement accounts since
Financial Freedom can mean having enough
money from your Investments to cover
your living expenses at some point just
having a large emergency fund and
savings account isn't going to be enough
we need to invest that money and luckily
the government has given us many ways to
invest money in a very tax advantaged
way in other words any money that you
put into these Investments not only can
they grow tax-free but any contributions
you make to these accounts are a direct
deduction to your taxable income since
taxes will be your single biggest bill
in your lifetime it makes sense to make
use of these accounts so the most
popular ones in America are the 401K
this is a workplace sponsored retirement
plan and you can make contributions to
it that are tax deductible the growth
will be tax deductible and although you
will have to pay taxes on withdrawals
later on in the future but because you
are able to make pre-tax contributions
you'll save a lot of money in taxes
along along the way and be able to
contribute more because you're doing it
with pre-tax income so start with your
401k if you have one at your job likely
your employer is offering what's called
an employer match which is where for
every dollar you put in they will
contribute X number of dollars so this
is essentially free money I was able to
grow my 401k to over
$25,000 half of that being investment
growth the other half being primarily
from employer match so it's a really
great hack for quickly jumpstarting your
Investments for Financial Freedom
another account you can look at is
what's called a Roth IRA this is where
any contributions you put into it are
after tax so it doesn't reduce your
taxable income but all the investment
growth happens tax-free and later on in
retirement you can make withdrawals tax
free too this is great because if your
Investments Grew From I don't know from
$1,000 to a million you can withdraw a
million taxfree which is pretty
incredible the Roth IRA is probably the
best thing since sliced bread so
definitely look into that now if you're
self-employed you might not have a 401k
but I also want you to look into either
a solo 401k or a SEP IRA these are
accounts that allow you to put a ton of
money away pre-tax reduce your business
income and take a lot of tax deductions
so definitely look into that and if
you're self-employed you're also
eligible to open a Roth IRA there are so
many ins and outs to these retirement
accounts but if you're not opening them
and contributing to them regularly
you're leaving a lot of money on the
table and paying way too much in taxes
so to help you out I created a
comprehensive guide called the Financial
Freedom starter kit and in it I will
explain all of the accounts that you can
open for Financial Freedom what order
you need to open them in and where
exactly to open them so check it out
it's completely free you can download it
at Ros hon.com starterkit I'll also put
the link in the description something
else I want to clarify is these are
investment accounts but they're not
Investments so once you open the account
you need to put money in and then invest
the money in that account that's another
step and I have a bunch of videos on my
channel that teach you how to do that
I'll put a link to my Investing For
Beginners playlist below so check that
out but your first step right now is to
figure out what retirement accounts you
are qualified to open open them find out
what the annual max contribution limit
is and start funding them right away
okay and step five for Financial Freedom
is to pay off all other debt except for
maybe your mortgage at this point you've
already knocked out credit card debt way
back in step two so now you're only left
with lower interest kind of singled
digigit rate debt such as car loans
student loans and maybe a mortgage even
though the interest rate on these types
of debt are pretty low you can never
really call yourself financially free if
a portion of your income every month is
going towards these fixed monthly
payments so your next step is to make it
a priority to become debt-free there is
no other better feeling than being
debt-free and knowing that everything
you make every month is for you and not
for anybody else and the amazing thing
about this is once you knock out those
debts you will have so much extra cash
flow freed up to then move you even
closer to Financial Freedom faster when
I finished paying off my student loans
and it was incredible how much extra
money was freed up to put even more
towards investing and that's when things
really started to take off so that's
something else I wanted to point out
even though the steps to Financial
Freedom are sequential it doesn't take
the same amount of time to accomplish
each step it's actually the first few
steps that might take the longest but
because momentum builds and you'll be
gaining more skills more confidence with
your money and generating more cash flow
and freeing up more and more cash flow
as you knock out each step each step
actually getss easier and easier and
faster to accomplish okay one more thing
I want to say about this one part of
paying down other debts is to not take
on new debt in the first place and the
one major mistake that people make is
getting a car loan on a new car there's
nothing worse than debt on an asset that
depreciates in value every single day
and sadly the average American is paying
a monthly car payment of around $7 $800
a month think what could be possible for
for you if you had that money going
towards your Financial Freedom goals
instead so I know this is unpopular
advice but I really believe in saving up
money to buy a gently used car that you
pay for in cash you can get a decent car
for under $20,000 even $10,000 and save
that money up in cash just because it's
normal just because everyone else takes
out car loans to buy a shiny brand new
car doesn't mean that you have to and
remember the average person doesn't have
Financial freedom and so if you want
Financial Freedom you can't do what the
average person is doing okay moving
right along to step six which is to max
out all of your other retirement
accounts and invest all of your Surplus
all of the retirement accounts that I
mentioned in step four they have quite
large annual contribution limits as of
2024 you can put up to $23,000 a year
into your 401k pre-tax and you can put
up to and $7,000 a year into your Roth
IRA so that's already $31,000 that you
can and should be trying to put away
every single year towards retirement and
then there's other amazing retirement
accounts you can look into such as the
health savings account I also mentioned
the solo 401k and SEP IRA and then if
you've maxed out all of those accounts
you can then start investing more in a
taxable brokerage account you can also
open additional high yield savings
accounts where you can save up for
short-term financial goals like your
dream vacation or a down payment on a
house again check out my Financial
Freedom starter kit for guidance on
where exactly to open all these types of
accounts so those are the six simple
steps to Financial Freedom seven steps
if you count Step Zero it took me 8
years to get through all these steps for
others it could take longer maybe 10
years or several decades whatever amount
of time it takes you to get through each
step just remember that you are on your
own Journey you're running your own race
and as long as you take one step at a
time in the right order you will get
there the other thing I wanted to point
out is that Financial Freedom is not
really a fixed destination or a fixed
amount that that once you reach it you
will all of a sudden feel completely
different and have total peace of mind
and a beautiful relationship with money
Financial Freedom is more of a journey
even if you're on step one or two and
just at the beginning you can actually
choose the feeling of Financial Freedom
I don't believe in the whole philosophy
of deprivation and putting all of your
money towards investing and saving for
the future for this one day hopeful
destination of Financial Freedom you
also want to be able to balance enjoying
some of your money now living the way
you want to live now spending the time
with your loved ones now doing the
things that you want to experience now
with also preparing for a life of more
Financial Freedom in the future there
are people who might save up a certain
amount of money to be financially free
faster because they deprived themselves
and had a 90% savings rate and never
went out and spent and enjoyed any money
but once they reached that dollar amount
they will not have exercised that muscle
of being able to enjoy the journey and
enjoying their money along the way and
just hold holding their breath for this
one-day destination that when they get
there they might actually regret all
those years that they spent just living
in deprivation so this is your reminder
that Financial Freedom is a journey not
a destination so don't forget to enjoy
the Little Pleasures along the way to
not always feel guilty about the little
things that give you Joy in life that
you spend money on and to just always
maintain that balance let's just say
Financial Freedom is more of a state of
mind than a fixed dollar amount thank
you so much for watching that's it for
this video don't forget to download my
Financial Freedom starter kit and I'll
see you in the next video bye
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