The 5 Fierce Steps to Financial Freedom

“I want to be the kind of man who can take care of everyone around him,”

“I don’t want to be the guy who has to take a woman out and have to split the bill,” 

“I don’t want to be a man who is always worried about money.”

If you can relate to any or all of the above statements, this article is for you.

Part of your responsibility as a man is to “get your money right.” If you’re constantly worried about having enough money to buy groceries, you’re not going to be happy or effective. If you don’t have the extra cash on hand so that you can go out for a nice dinner with a pretty girl, or take your wife on a surprise 3-day vacation, then you haven’t got your finances sorted out yet.

What does it take to become fiscally responsible? At minimum, you should have spent time answering the below 5 questions and drawing up your own “financial plan.”

Then, consistent action-taking until your bank account, savings account, investment account, emergency account, and “happy account” are all at desired levels.

If you like what you read, leave us a comment here and let us know what else you’d add.

5 Foundations For Your Fierce Financial Plan

Here are the questions that will guide you in building a strong financial plan:

1. Your savings rate how much of your take-home pay are you saving each month? (Average in America is about 3%.) The most financially free people I know ($1MM+ in net worth, not including property, and/or $100k+ in passive income per year) have found a way to save 30-70% of their take home pay. Savings means security and future options. A great tool I’ve started using is Digit.co which automates your savings habit based on your spending habits. If you don’t currently have an “emergency stack” of cash that is either $10k or 6 months’ living expenses (whichever is larger), what can you do today in order to get there? If you’re not currently saving 30-70%, what is your plan to increase your savings rate over time?

2. Your total debt load and debt service  what is the interest rates on all debt you carry; the total cost of your debt if carried to term; how much you are paying each month on all debt; and the date you will be debt-free? In America the average student loan debt carried is $20,000; the average credit card debt is $8,000 (the highest level since 2008) and the average credit card interest rate is around 15%. Debt carried on property or assets owned that produce cashflow is a different story from consumer or student debt since it is “productive” debt. What is your plan to pay down your consumer or student debt and acquire “productive” debt that creates cashflow and a second stream of income for you?

3. Your creditworthiness or FICO score – how cheaply can you borrow money? this number can be found for free at CreditKarma.com. This site also comparison shops for you among different financial products and educates you on how to maximize your credit score. Being more creditworthy means lower cost of money and savings of thousands of dollars over a lifetime of borrowing money. Most people think being creditworthy means “I always pay my bills on time” but this is just part of the equation; an equally important part of the equation is “I use less than 30% of my available credit” which either means you have a large amount of credit extended to you or you have a small amount of outstanding debt. Basically, as you take on more debt in life, you must have a commensurate increase in income, or the market will punish with expensive money. What is your current FICO score, what would you have to do in order to jump up into the next bracket? 

4. Investment & future planning – are you on track for having the amount of money you want in the future? The average American retires with $104,000 in cash and will incur $250,000 in medical expenses ALONE between age 65 and death creating a $146,000 shortfall. This plus the 3% savings rate means most Americans are preparing for a “retirement into poverty.” If you do not want to try to survive on $12,000 per year at the age of 65 and become a financial burden to your loved ones, it is YOUR responsibility to create the nest egg that will prevent that. Learn your risk tolerance, time horizon, and preferred asset classes. Low-cost index funds (Investopedia: index funds) are probably the best way to maximize returns while minimizing costs if you want to be in the stock market. Very few active fund managers outperform the index over the long term. And not everyone needs to be invested in the stock market; there are many alternative asset classes: prime consumer debt, real estate, and the like. Use Betterment to adjust to your retirement goals and invest safely with very low fees (and get 6 free months with zero fees by using my affiliate link here.)

5. Income plan – In a financial statement, the income or revenue line is the most important line in the entire document. More income makes everything easier. The biggest factor in your ability to create the freedom and security you want in the future is how you think about your money NOW: is it

A) something to be used to purchase consumer goods that will make you feel good temporarily, or

B) an asset that can be used to purchase other assets that will create more cash for you in the future?

You really only have two choices in life: pain now, or much more pain later. (Tweet this!) It is always less painful to take a small amount of pain up front by saving “until it hurts”, investing “until it hurts” and forcing your existing money to multiply “until it doesn’t hurt anymore.” How much money do you want to bring in? Where are you now? How will you close that gap? How much money do you need for current lifestyle, debt retirement, investing, family expansion, savings, and preparation for the future if you ever want to stop working?

From talking to financial planners, men worth multiple millions, and older people with less money than they’d like, I’ve surmised that for most of us we need more money than we think we do. Especially considering the fact that the economy will quite likely tank again.

It is your responsibility to know all your numbers, have a plan, and be actively working the plan and improving it over time. Spend at least an hour going over these questions, and their answers, in detail, this weekend.

You may not be happy with your answers, but if you do not confront the reality of your financial situation, it will become a demon on your back that will grow larger and larger until it swallows the rest of your life whole. I’ve seen it happen to people close to me. Please. Don’t let it happen to you.

NOTE: Notice that nowhere in the above list did I tell you to start buying fewer lattes! Cutting small expenses that add to your quality of life will not bring you financial security. Only large amounts of income, and proper stewardship, of that income will bring financial security.

7 STEPS TO ESCAPE THE PAYCHECK-TO-PAYCHECK CYCLE 

& BECOME FINANCIALLY FREE

Most Americans, even those earning a “good” income, live paycheck-to-paycheck.

This is not their fault: the “Middle Class” has experienced flat wages for the last 2 decades while costs of everything have risen (with medical care and education leading the way).

But how do you get out of it?

First you make a plan (see the 5 points above). Then you need to take these steps, in order:

  1. Aggressively pay down any non-productive debt. Use the new technology of tools like SoFi or LendingClub to refinance your consumer or student debt to lower levels if possible, but more importantly, to put you on a set plan of accountability that WILL set an end date on your debt. What is “productive” debt? Debt that throws off a cash flow each month (such as rental housing you own, or other productive assets.)
  2. Start saving “until it hurts.” Put the money out of sight, out of mind. Use Digit.co which analyzes your spending habits and automates your savings (affiliate link). You need a 6- to 12-month cash cushion of basic living expenses minimum for when the economy blows up again (which it will).
  3. Once you have at least 6 months of living expenses set aside in cash, you can stick some of them in a Certificate of Deposit or other ultra-safe investment that pays some percentage of interest (almost certainly under 3% in the current 0% rate environment.) This is better than having the lump sum of cash just sitting in the bank, being eaten away by inflation. Don’t listen to the “news” media that tells you inflation isn’t happening, it is.
  4. Every time you make more money, increase your savings rate by the same amount. Get the money out of your sight and hands as quickly as possible. Remember, a small pain now avoids much greater pain later.
  5. Once you have a 6 to 12-month stash sitting just out of reach, you can safely start investing. Buy the market (Investopedia: index fund) so that you have exposure to higher rates of return, from 5% to 15%. (This market exposure also means you have downside risk as well as upside risk, but at least you’re likely to beat the rate of return in your CDs in the upside scenario).
  6. Choose at least one alternate investment vehicle and put 2-10% of your cash into it (or more). Real estate has never been easier to invest in. Prime consumer debt (credit cards) are now an asset class available to the everyday investor via P2P lending. You can invest via the #1 marketplace lender, LendingClub (full disclosure: this link will give you a $25 bonus to start investing as it is my referral link.) You can also invest in business lending in a marketplace environment; for small business lending see FundingCircle. For real estate, see PatchofLand, LendInvest, Fundrise. All of these asset classes have the potential to exceed 10% returns with less risk and volatility than the stock market. Of course risk rises with returns, so do your own research and know your own risk tolerance and desired returns.
  7. Invest in yourself. Above a relatively “safe” investment like prime consumer debt that might earn you 7%, or the stock market that might do 12-13% in a really good year, the highest return on investment you’re going to get is sinking your money into your own knowledge, skills, and abilities. Learning a second (or third) language and, upgrading your skillset so you are more valuable to companies, and learning the working skills of entrepreneurship are at the top of the list of skills that will allow you to create more wealth for yourself and others in the future and can lead to returns of 1,000%+. “An investment in the self pays the best interest,” as Benjamin Franklin said. Pay the money to get into social clubs that will allow you to socialize with other high-performing men. (We have just such a social club here at FierceGentleman.com; click here to see if you might fit in.)

There are enough action steps here to keep most of you busy, for now. Let us know in the comments if you have other questions or need more direction on what to do next.

flourish4


Also published on Medium.

4 Comments The 5 Fierce Steps to Financial Freedom

  1. Pingback: The 5 Prosperity Mindsets That Allowed Me To Save $29,311 in One Year - FG

  2. Richard

    This is a wake up call to me.
    This weekend I will be spending at least an hour to find faster ways to clear my debts.
    Thanks

    Reply
  3. Rob

    Great advice. When you own your own small businesses, the Govt. Makes it quite impossible to save 6 months, yet it is necessary.

    Reply

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