Where do you start with money?
You want to retire early and gain financial independence, but you have debt and no idea how investing works. Overcome analysis paralysis with The Finance Plan, a step-by-by step plan to pay off debt, invest, save for a rainy day, and make a big life purchase like buy a home, car, or ultimately retire early.
It’s your step 1, 2, 3, 4 with money. Each step is a major milestones and checkpoint in your financial life. When you follow The Finance Plan, you can become financially independent (even if you’re still in debt now).
It meets you where you’re at now and gets you where you want to go: financially independent and free!
In celebration of my birthday, get $49 off your enrollment to Best Money Class Ever with coupon code: birthdaysale. Enroll by Sunday Oct. 17th.
The Finance Plan: A Step-by-Step Plan on How to Gain Financial Independence
Here’s a quick overview of how to gain financial independence with The Finance Plan.
The Finance Plan Step 1: Save 10%
The first step to gaining financial independence is to start saving 10% of your pay for your future.
Anyone who follows the Financial Independence, Retire Early (FIRE) movement will say saving 10% is not enough to retire early. This is true, however, before going balls to the wall with retirement investing, you need to first get out of debt and have an emergency fund. Find out what exactly the FIRE movement is right here.
The Godfather of the FIRE movement, Mr. Money Mustache, lives comfortably off $25,000 because he doesn’t have debt. You can retire early with a mortgage or debt, but it’s a LOT easier to gain financial independence (having a nest egg of 25 times your annual expenses) when your annual expenses don’t include debt.
Some money gurus, like Dave Ramsey, advocate to stop contributing for retirement until you’re 100% debt-free and all your student loans and car loans are paid in full.
Common sense says to always live below your means and save for your future.
Plus, if you’re really on a mission to get out of debt, you need to have savings in place to prevent taking on more debt for unexpected emergencies (and $1,000 from Dave’s plan as a starter emergency fund won’t cut it!).
With The Finance Plan, when paying off debt, of the 10% you’re saving put 5% to a starter emergency fund (liquid cash savings account for a rainy day) and the other 5% to retirement (long-term investing).
For example, let’s say Average Joe makes $3,000 a month, he’d save $300 total a month. When paying off debt, $150 (5%) will go to an emergency fund (liquid cash savings) and $150 (5%) will go to retirement (long-term investing).
The Finance Plan Step 2: Get out of debt
The second step with The Finance Plan is to get out of debt.
Easily, a third or more of your income can go out the door to pay off what you owe, not to mention thousands of dollars go down the drain to pay interest. Retiring early (or even at the standard retirement age of 65) is difficult if you’re drowning in debt.
To reach financial independence make paying off your debt a priority.
I created The Spartan Method to pay off debt. The 300 Spartans were known for fighting the much larger Persian army.
You don’t get in debt overnight and you won’t get out of debt without a good fight.
In a nutshell, with The Spartan Method to get out of debt pay ALL your monthly minimums plus an Extra Spartan amount of $300 or more to your highest interest debt each month.
Three hundred is small enough pretty much anyone can do by cutting a few expenses and bringing in an extra income. It’s big enough to make traction to be debt-free.
When the highest interest debt is paid, you’ll take what you’re were paying to that debt, plus the extra Spartan amount to pay towards your next highest interest debt. So on and so forth until you are completely debt-free!
For example, Average Joe owes $40,000 with monthly payments of $890. He’ll pay $890 plus an extra Spartan amount of $300 to the highest debt each month. Every month, he’ll pay $1,190 to debt and be debt-free in 36 months.
Following The Finance Plan, when Average Joe’s debt-free he’ll also have a starter emergency fund of $5,400 AND $5,400 for retirement when he’s debt-free.
Then when you’re debt-free, start investing all 10% to your retirement (long-term investing).
The Finance Plan Step 3: Save for an emergency fund
The third step with The Finance Plan is to save 3-12 months’ worth of expenses for an emergency.
A key part of a financial plan is savings for a rainy day to tackle life’s little unpleasant (and oftentimes pricey) surprises. Following The Finance Plan, the best method to save for an emergency fund is to turn a liability into an asset.
A liability is what you owe, and an asset is what you own. On step three of The Finance Plan, your student loans, car loans, and credit cards are paid in full. You can turn what you were spending on debt (your liabilities) to an asset, your emergency fund.
For example, Average was paying $890 plus an extra Spartan amount of $300 to debt every month. The $1,190 will now go to completing an emergency fund. Within eleven months of becoming debt-free, Average Joe will have a complete 6-month emergency fund of $18,000.
The Finance Plan Step 4: Save for life purchases
The fourth step is with The Finance Plan is to save for life purchases like buying a home, car, or retiring early. At this point with The Finance Plan, your retirement savings is off to a great start, you’re debt-free with no monthly debt payments, and you’ve got money in the bank for a rainy day.
Now the sky’s the limit. You can save up for the fun things in life like buying a home, car, or retiring early.
For example, Average Joe can save $1,190 a month for a down payment on a home or to outright buy a car with cash. Now you can go HAM on your retirement investing to retire early. Following The Finance Plan, you no longer have debt payments, so your expenses are low. Gaining financial independence or FIRE (25 X your annual expenses) is attainable!
If you dream of retiring early, even though you have debt now, you can turn things around. All you need is a plan. Follow The Finance Plan as your step 1, 2, 3, and 4 with money.
If you liked this post, then like it and share it with your friends.
Remember, you only live once. Be smart with your money now.
P.S. Ready to gain financial independence? Get $49 off your enrollment to Best Money Class Ever when you enroll by Sunday Oct. 17th. Use promo code: birthdaysale. Get details and enroll here.
