Do you feel completely in the dark about your finances?
Either you aren’t managing them well and end up wasting most of your money, or maybe you don’t have enough to waste to begin with. Whatever your situation, you could probably benefit from some practical and effective financial advice right?
But how do you know who you can trust? Many financial advisers are intimidating with their designer 3 piece suits, their industry jargon and their talk of fees, commissions and kickbacks. Wouldn’t it be great if you could just get some solid advice to protect your family and use your dollars wisely?
Well, Scott Pape felt exactly the same way. He entered the finance world as an Australian farm boy looking to protect his financial freedom. Trouble is, he was far more used to roaming the farm barefoot, than dealing with the mercenary nature of the stock exchange.
So he decided to turn the world of financial advice on its head by creating real and actionable advice for everyday people. He wants people to understand their finances and be able to make educated decisions by knowing all the facts.
So, he put together his top 10 ways to make your money work for you in a book called The Barefoot Investor. Let’s take a look at the top 3 ways now…
Steps 1 to 3 for Financial Freedom
Step 1: Schedule a monthly date night
Not quite the same kind of date that you might be used to, as there is no swiping left or right and no dancing. But there can be dinner and conversation.
Set up a date with your finances once a month. You and your partner (or a friend) can get dressed up, enjoy a meal and talk money at the same time. Do it at your favourite restaurant, have a picnic in the park, or even at your own dining table. It doesn’t matter where you do it, the important part is that you intentionally put aside time to set up your systems, track your progress and stay accountable.
Make sure you both have a clear picture of your finances. Look at simple places where you can save money like your bank fees. Also look at your insurances and make sure you are covered for everything that you need.
Step 2: Set up your buckets
The idea of the buckets is to have a simple foolproof system for your money that operates both on autopilot and builds your wealth at the same time. To do that, you want to divide your money into 3 buckets:
- Blow: the bucket for daily expenses, a little bit of splurge money and money in case of financial emergencies.
- Mojo: the bucket to provide you with some safety money.
- Grow: the bucket to help you build long term wealth and total security.
Sounds simple right? That’s because it is. And the best part is that this simple plan actually works. It allows you to meet your ongoing costs, but still put some aside for the things you need and the bigger long term financial commitments.
Step 3: Domino your debts
Scott’s thinking is that if you have credit card debt, a personal loan, or any other kind of debt, then you aren’t fully in control of your financial future. So to regain a feeling of confidence, control and financial freedom, you need to domino your debts.
There are 5 steps to set up and then if you stick to them, your debts will start to fall like dominoes…
- Calculate: Write down all of your debts (apart from your mortgage) including credit cards, car loans, funds you borrowed from your parents, or any other money you owe.
- Negotiate: Call your lending providers and see if you can negotiate a lower interest rate on your credit cards and loans. Lower rates mean that you will pay less in interest and be able to put more off the principal.
- Eliminate: Cut up all of your credit cards so you can’t add to your debt.
- Detonate: It is time to detonate your debt. Put your debts in a list of smallest to largest. You are going to knock out the smallest ones first, regardless of interest rates. Be careful to keep up the minimum payments on all of your other debts while focusing any extra repayments on the smallest debts.
- Celebrate: When your smallest debt is paid in full, have a celebration. Even toast to it if you feel the need. Celebrating success is important as it teaches you to win, then you hunger to win some more.
So those were the first three steps to financial freedom. Stay tuned for next month when we explore the next three steps of the barefoot investor summary.