10 Steps to Financial Freedom

Financial planning should not be difficult or confusing. The steps recommended by A.D. Financial Planning are simple and straightforward. If you don’t understand an investment, you should not invest in it. The same is true for a plan to build wealth; if you don’t understand it, chances are it’s not going to work for you. A.D. Financial Planning uses ten steps to take your finances from where you are to where you want them to go.

1.    Create a written spending plan

A budget, or spending plan, is the single most powerful, practical tool for wise money management and is the foundation for the 10 Steps to Financial Freedom. Money that comes in with each paycheck and does not have a written purpose will mysteriously vanish! You'll wonder why you have more month than money - it is because you didn't have a written plan! No one wakes up in the morning excited about the idea of putting together a budget.  Using a budget is not the goal.  A budget is a means to the goal. Do you want to become debt free? Buy a house?  Take a special trip? Now those are goals that will get you up in the morning, and using a budget will help you get there! To help you get started, A.D. Financial Planning has a budget guide on this site. For additional help, contact us, A.D. Financial Planning can show you how to setup an easy to use budget. Additional information on spending plans and budgets can be found under our Investment Advice menu.

2.    Create a beginner emergency fund

You'll never make headway in your mission to get out of debt if you don't have some savings — at least a little something to fall back on while you are getting started. This is usually $500 - $1000 to use in case an emergency comes up while you are beginning your steps to financial freedom. Contact us, A.D. Financial Planning can help you with ideas to get this first beginner emergency fund started.

3.    Get your employer match

If your employer matches part of your retirement savings, through a qualified retirement plan, save an amount to maximize this match. Many employers match dollar-for-dollar up to a certain percentage that you save. This is like getting a 50-100% return on your investment! Very few, if any, investments or bill interest rates offer this great of a return on your investment. If your employer does not offer a retirement savings match, proceed to step 4. Contact us, A.D. Financial Planning can help you choose the funds in which to start your employer sponsored retirement savings.

4.    Get out of debt

List all of your debts (except your house -that comes later). Some choose to list the debts smallest to largest based on the balance, others choose to list the debts largest to smallest based on the interest rate. For most individuals and families the smallest balance method works best because paying off that first debt, even if it is a small amount, is a victory! That victory gives you momentum to pay off the next largest debt and the next largest debt and the next largest debt... you get the picture. The right way depends on you; the goal is to pick one debt and attack it! While attacking that debt, all other debts get only minimum payments. When the first debt is gone, you take the payments you were making on the first debt and add that money to the minimum payments you were making on the second debt. Now that second debt is in your focus and is obliterated at an even faster rate than the first. This process is continued until all debts are gone! Contact us, A.D. Financial Planning can help you setup your budget and plan your payment schedules to be sure your money is working as hard as you are!

5.    Expand your emergency fund

Rain falls on the just and unjust alike. Everyone is going to have an unexpected home or auto repair, a job loss or an unplanned medical bill. By expanding your emergency fund from your beginner balance to 3-12 months of living expenses you will have gone a long way to eliminate the “what if” stresses in your life. Those things that used to be financially disastrous are now merely an inconvenience. Your money should bring a sense of peace, not stress or worry. Remember that spending plan you created in step 1? This is another use for it. Sum up your monthly living expenses to determine your emergency fund. A.D. Financial Planning recommends the following size emergency fund:

Contact us, A.D. Financial Planning can show you how to plan the right amount for your emergency fund and show you the right account in which to keep your emergency fund. Additional information on emergency funds can be found under our Investment Advice menu.

6.    Save for a major purchase

You’ve started saving for retirement, paid off all your debts and set aside enough money to cover emergencies. Great job! If you need to save for a down payment on a house or to pay cash for a car, this is the step. Save at least 10% of the home price for a down payment; 20% is even better because you'll avoid the added Private Mortgage Insurance (PMI) that lenders require for down payments less than 20%. Never finance an automobile purchase; always save enough to pay for a vehicle purchase. Contact us, A.D. Financial Planning can show how to calculate home payments and discuss savings strategies.

7.    Invest for retirement

The younger you start, the longer your money has to grow. There is a benefit to starting saving early; A.D. Financial Planning recommends saving the following percentage of your annual pre-tax (gross) income into your retirement account(s), based on when you start saving:

In step 2, you began saving and maximized your employer match, if that percentage does not exceed the recommended percentages, next start saving in a Roth IRA, if you are income eligible. Roth IRAs allow your savings to grow tax-free! If you maximize your employer match, and maximize Roth contributions, then return to your employer sponsored plan and continue to contribute until you meet your recommended percentage. Your golden years should be filled with satisfaction and dignity; you must start planning for those years now in order to make that happen! Contact us, A.D. Financial Planning can help you find the best investments and we can educate you on the financial markets.

8.    Invest for college

If you have children, then you'll probably have worries about how to pay for college. The earlier you start, and the more attention and funding you're able to give to it, the better off you and your kids will be. College tuition inflation averages around 5 to 7 percent per year (much higher than standard inflation, which averages around 2 to 4 percent per year). Because college costs are going up quickly, you will want to be sure to use tax-advantaged accounts (such as 529 plans or Education Savings Accounts) to their fullest extent. Contact us, A.D. Financial Planning can help you budget for college and manage educational savings.

9.    Pay off your home

Now that you have your debts gone, your retirement funded and your children ready for school, it’s time to pay off your home. For most individuals this is often your largest monthly payment. Yes, we know home mortgage interest is a tax-deductible expense! If you are in the 30% tax bracket, how wise would you say it is to continually pay, say, $5,000 in interest to a bank each year, just so that you won't have to pay $1,500 in taxes to the government? The small minority of folks who own their homes debt-free don't mind paying $1,500 instead of $5,000 one bit! Additionally, making a charitable donation can have the same tax advantage as your mortgage interest deduction! Contact us, A.D. Financial Planning can calculate an accelerated payoff schedule, show you how a paid for home will affect your investments and more.

10.    Build Wealth and Bless Others

Your debts are zero, your savings are full, your retirement is funded and your children are financially ready for school and now you live in a paid for home – wow! Quickly your money is going to be earning more than you are. Taking all the payments you used to make to everyone else and investing it is going to make you very wealthy. If you invested $1,500 a month (what you used to pay to the credit card companies and to the bank) at 10% interest, you would have over $1,000,000 in less than 20 years! It’s not fast, but it’s worth it. 

But wait, it's not over yet... building wealth should not be your only goal. You now have the financial freedom to live your dreams and bless others through your resources! God has blessed you to make it to this step; your task is to cheerfully pass on these blessings. 2 Corinthians 9:7 says, “God loves a cheerful giver” so go bless others!

Contact us, A.D. Financial Planning can show you how to save outside of tax-deferred or tax-free retirement accounts and help you find the best investments and we can show you how to investigate charitable organizations, before you donate, to make sure your money goes where you want it to go.

A.D. Financial Planning is here to help you wherever you find yourself on the financial road. Whether you have no savings or are well on your way to financial freedom, we can get you on the path to prosperity or simply give a second opinion to your investing strategy. Our independence provides you with the confidence that our advice is objective and in your best interest.