financial freedom title

money-finance-bills-bank-notesIf you’ve ever lived paycheck to paycheck and run out of money for your monthly bills, you know how stressful this can be. About one-third of American households are currently living “hand to mouth” (see recent research). This is simply a disaster waiting to happen! When unplanned expenses occur (car accident, health problems, etc.), debt tends to accrue and quickly grows out of control. In this age of instant gratification, it is more tempting than ever to live beyond our means. However, if we don’t consider and plan for the future, we will never enjoy the peace of mind afforded by financial freedom.

Whether you’re suffering under a growing pile of debt or unsure about how to save for retirement, this three-step plan is a great place to start improving your financial security.

STEP ONE: Goals 

First, define your (and your spouse/family’s) goals. In general, the common goal is to increase one’s net worth (sum of all assets minus liabilities – see more here). Depending on your situation, you may have relatively simple goals such as getting out of debt by a certain date, or preparing for disaster by putting away 3-6 months worth of expenses into savings. Maybe you already have a chunk of emergency cash and you’re ready to define goals for retirement savings. Or have you entered into a new job and are trying to decide how to allocate the sudden increase in income? Or, maybe you’ve had a steady income for years and are suddenly realizing that your 401k won’t cut it for the retirement of your dreams.

Write down your goals. Be as specific as possible. Make some fun goals to accompany the difficult ones, and specify the date you’ll achieve each goal if applicable. Examples:

Fun goals:

  • Create a date night fund.
  • Save up for a cruise.
  • Save for a down payment on your first home or for a remodel.

Not-so-fun goals:

  • Pay off a credit card or a medical debt.
  • Establish an emergency fund (3-6 months worth of expenses).
  • Plan for a child’s college education.
  • Plan for retirement. This is a topic of its own. Briefly, you’ll need to decide how much retirement savings you’ll need and calculate how much to save in order to meet that need. A safe estimate is 80% of your pre-retirement income times 30 years, factoring in a reasonable interest rate of growth (for example, if your salary is $85k, you should have about $1 million saved by age 65 to provide a steady but decreased income of $60-$68k per year assuming about 8% growth). There are many online calculators to help with this (e.g. this one), however, it may be best to sit down with a financial planner at least once to come up with your goals and your master plan.

Go to STEP TWO: Tracking Income and Expenses

Go to STEP THREE: Create a Budget 

(picture source: free stock photo from

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