we often think of Financial Freedom as some distant concept something that is reserved for a fortunate few or those who are part of this exclusive Circle but the reality of achieving Financial Freedom is not on the far side of some crazy complex set of instructions that you need to figure out on your own and so in this video I wanted to walk you through the four-step payday routine that I believe if you can get right will help you master your financial life with less stress and more confidence than you've ever had before before I get into it what does Financial Freedom mean to you I asked you guys this question on my newsletter some time ago and I wanted to read out some of the Snippets from the answers that I got Financial Freedom means to me being able to choose where I want to sit on an airplane and not having to worry about the additional cost being able to eat good food whenever I want and enjoy a fresh haircut every 3 months flying home to see my parents I haven't seen them in four years taking up a new hobby trying a new experience just doing something for the first time and not feeling bad about spending money on it being able to try a new business venture without worrying about how it'll take away from being able to pay for my day-to-day expenses Financial Freedom is more than just a number it's a feeling it's a state of mind it's the idea of feeling so confident and in control of your finances that you're able to spend freely on the things that you love today knowing that it's not taking away from your other priorities and your bigger life goals so let's get into into the four steps by the way if you're someone who wants to go away and Implement everything from a video step by step I have a downloadable cheat sheet that gives you the summary of each of these points and details on exactly what you need to do it's completely free and you can download it in the description below the first step is to track there is a famous quote that is the first step towards getting somewhere is to decide you're not going to stay where you are and then I would say the second step towards getting somewhere is to know where you currently are I always hear people say I'm trying to save more this year or I'm trying to spend less this month and my first question is always how much did you spend last year or how much did you spend last month most of the time they have no idea but if you don't know where you currently stand how can you get better so that's the very first thing to do track where you are right now you want to categorize your spending into three buckets your fundamental expenses your fun expenses and then the amount you're putting towards the future you fundamental costs are your essential living costs so this includes your mortgage your rent utilities car or Transportation groceries and minimum debt payments you want to try and aim for all of these to total up to less than 50 to 60% of your take-home pay if you are thinking there is no way that these costs can total less than 60% of my takeover pay then the two you want to start with focusing on are your car and your home because these tend to take up the biggest chunk of our income and we don't need to be able to afford to pay for the entire purchase we just need to be able to afford the monthly payments and so because of this we end up buying a bigger home or a nicer car than our debt to income ratio allows so other than the 50 to 60% guideline for your fundamental cost another way to see if you are on track is to add up all of your monthly debt payments so your mortgage your car payments and any other loans or debt payments that you have and divide it by your monthly gross income and you want to try and keep this between 35 to 50% 35% is on the good side % is on the higher side if you want to balance enjoying the things you love today with long-term investing and short-term saving then it's going to be hard when you have a huge car payment or a mortgage payment that takes up all of your income it may be that you have to make some uncomfortable changes in the meantime but they will be temporary and it will make a big difference once you passed step one we move on to step two which is to save and repay a third of adults in the UK have no savings or less than1 1,000 in their bank account and 78% of Americans don't even have one month of their income saved up if you are able to save just one months of your living cost then you are in a better place than most people and this is purely for the psychological Comfort when something goes wrong you already have the financial stress of worrying about how you're going to pay for it you don't want the mental stress to go with it as well once you've saved one month then you want to pay off your high interest rate debt now this goes against a lot of the advice which you probably see or hear online which is that you should save up a 6 month emergency fund first so I want to explain why I say it in this order let's say you had saved up 5,000 earning 5% interest annually and it pays you 250 each year let's say you also have 5,000 on your credit cards with a high interest rate of 22% costing you 1,100 every year when we compare the interest you earn with the interest you pay you actually losing 850 every year to take this one step further let's analyze what would happen in two different scenarios if you decided to pay off your credit card debt with your savings versus if you decided to keep both your savings and your debt situation A assuming no emergency happens if you don't use your savings to pay off your debt you continue to lose 850 a year or if you choose to pay off your credit card debt with your savings you'll neither earn nor pay any interest so you're actually saving 850 year a year now situation B an emergency happens your roof caves in and you need to spend 5,000 to fix it in option one if you didn't pay off your debt you can now use your savings for your emergency leaving you with no savings and you still owe 5,000 on your credit card you'll continue paying 22% interest on that debt option two if you had already paid off your debt using your savings you won't have the savings for the Emergency anymore so you need to use your credit card again so paying off the debt will save you money in interest payments putting you in a better financial position unless an emergency forces you to borrow again then you would be in no different of a situation than you were in originally that is the reason why I talk about doing it in this order once you pay off your high interest rate debt then you can also build out your emergency fund to 3 months 6 months while simultaneously doing the next step as well which is number three to invest this is really important because this is where real long-term wealth is created this is where 10% of your income should be going at a minimum and the way in which you invest really depends on what path to Financial Freedom you want to take there's the investing in your self R so this comes down to investing in your knowledge investing in your skills whether it's entrepreneurial skills sales marketing business or skills that increase your value as an employee so for instance leadership training skills that help you get to where you want and build wealth Faster by increasing your personal value then there's a passive route which is investing in assets that compound real estate the stock market if you can dedicate 10% to this 10 % of your income every month this money will grow and compound and there will be a point where you make more from your Investments than you do from your income let's look at two scenarios if you started investing at 35 years old and you invest 500 a month for 10 years then by the time you're 50 you would have 19,6 34 and of that only 90,000 is your own money the remaining 100,000 is free money that you made in interest whereas if if you started investing at 40 you could still end up with a similar portfolio by the time you're 50 91,4 but you would have have to put in 1,000 a month you're putting in double every month so in total 120,000 of it would be your own money and then the remaining would be through interest this is the power of compounding and why the earlier you start the better you may already be doing this through your employer through a retirement contribution and then you also want to use taxfree accounts that are available first and then look into taxable accounts as well then the fourth step is to manage there's a famous quote by benjaman Franklin that is beware of little expenses a small leak will syn a great ship it's normal for your spending to rise as your income Rises it's human behavior but if it continues to rise at the same Pace or even worse at a faster Pace than your earnings then you're never going to break out of a cycle and feel financially in control yes you absolutely deserve to enjoy the Finer Things in life the beautiful holidays the high quality items the experiences that bring you Joy but equally you deserve not to live paycheck to paycheck for the rest of your life you deserve the Financial Freedom to walk away from a relationship that isn't serving you or to walk away from a job that you don't like without worrying about how you're going to pay for your bills 10 years from now that brand new car probably isn't going to make you happy or financially free but making the decision to invest the money today instead invest that difference that is going to very likely be the thing that gets you there you want to make sure that you take the time out every 12 months to review your finances increase the amount that you can invest adjust your Investments if you need to and as you approach retirement make sure you evaluate your risk appetite being financially free doesn't mean quitting your job or becoming a millionaire it's being able to spend on the things that you love guilt-free whilst knowing that your bigger life goals and your aspirations are also taking the front seat if you really want to take the four-step routine seriously if you want to learn more about each of the steps that we go through in this video and you want to take action and make sure you follow through with each of these steps then I have a completely free Master Class available I've included my best tips for each stage of this routine so I include what tools to use how to stick to good money habits how to avoid common mistakes that most beginners make when it comes to Building Wealth that you want to make sure
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