10 Steps to Financial Freedom

10 Steps to Financial Freedom

10 Steps to Financial Freedom

This article is what I wish I watched when I was a teenager.

I grew up in a family where my parents struggled really hard to make end meets.

So at a very young age, I came to realize that although money cannot buy happiness, if you don't have money, your life cannot be happy either.

Being the first generation immigrant in Canada, I worked three jobs for two years straight,

because my parents told us that the only way to get out of poverty is to work hard.

That was my belief for a very long time until I met my fiancé & went through so many panic attacks & burnt out myself.

So, today, I want to share with you how meeting my fiancé have changed my life so that I became financially free in my 20s.

Spoiler alert: he doesn't sponsor or give me any money, but what he taught me has transformed my life,

so I know how to be efficient with my time instead of working three or four jobs just so I could have enough money to pay all my expenses, and still end up living paycheck by paycheck.

Okay, in order to make this topic less serious, because for some reason money is a topic that my parents barely talked about when we was a kid.

So let's make a cheese cake with me while I share with you 10 steps that I applied to become financially free in my 20s.

Before we make a cheese cake, I want to bring you to this place. Let's go!

Okay, I'm back with this.

So the first step that I want to talk with you about in order to be financially independent is to... open a credit card...

I know, if you read a lot about personal finance, a lot of financial advisors will advise you against having a credit card.

However, I do think knowing the importance of the credit card and to leverage the credit card to your best advantage is a really simple step toward financial freedom.

Now the reason why I say this because a lot of credit cards give you the option to gain 1% cash back

on every dollar that you spend on your purchases.

So think about it this way: If every week, you spend about $100 on grocery bills By having a credit card with no annual fee and 1% cashback, you save yourself $1 every week, totaling $4 every month, which is approximately $48 a year.

If you consistently invest $48 a year into an index fund, S&P 500 for example which we will explain in a bit what index fund means, with an average return of 8%.

15 years from now, your money grows into about $1400.

That is just a very simple example about the compounding effect.

Now I know it may not sound a lot, but when you start thinking about all your expenses adding up and accumulating over years that 1% will make a big difference in your personal finance picture.

If you use the credit card to pay for all your monthly expenses, and your monthly spend is around $2000.

You already save yourself $20 a month, equal $240 a year, and have the potential to grow into about $6500 in the next 15 years if properly invested.

Personally I am using BMO Mastercard and ATB Mastercard to pay for the majority of my purchases

Now the reason I did this because neither of those mastercards cost me any annual fee at all.

and for BMO Mastercard, you get about 3.5% on all the grocery purchases, however, only 0.5% on other purchases.

For ATB Mastercard, however, you get 1% cash back on all the purchases, so I usually use BMO Mastercard to pay for my grocery and then I use the ATB Mastercard to buy all the random stuff that I need for my life like clothes & electronic devices. 

The second reason why you need a mastercard is that a lot of lenders will look at your credit score as a way to validate if you are a reliable and responsible borrower or not. If nothing else, I really want you to take this advice seriously, and your future self will thank me for that when it comes to the time that you need to buy a house or start your business. 

If you don't know where you stand at in terms of your credit score, then I strongly recommend you login online to any banking institutions that you use, and most likely they have a section somewhere in your banking portal for you to check your credit score. In order to be a good follower in the eyes of the lender, your credit score needs to be above 700, ideally above 800.

Anyways, let's be back to making the cheese cake!

Ingredients here include: eggs, cream cheese, butter and sugar and also almond milk. 

Now, let's talk about bad debt and what's the difference between bad debt and good debt and why you shouldn't have bad debt. 

So bad that is an example when you borrow money to buy stuff that you don't get any return on investment, meaning it will make you further in debt without giving you any money advantage in the future. 

Let's think about the scenario when you decide to buy a pair of shoes from Michael Kors that costs you $600, and you don't have any cash with you, unfortunately, you have to borrow money from the bank, at the interest rate of 20% to buy that pair of shoes.

So right now, I just cut everything into smaller pieces, so it's easier for me to melt them in the microwave later.

Anyways, back to our topic, why is it bad debt then you may ask?

Because that pair of shoes you bought from Michael Kors actually costs you $190 more a month. If it would take you 10 months to pay up that 595 dollars, in total the pair of shoes cost you $1785, approximately three times higher than the original price of that pair of shoes. 

Next, we will talk about a way to avoid bad debt when you are bad debt free.

It's to have 6 months of emergency fund in a saving account where you can access it at any time when you need the money.

The idea of an emergency fund is for you to cover all the unexpected expenses that happen in your life, say the economic downturn which happens right now or when you lose your job then you could rely on that emergency fund to cover on your expenses while you don't have any income coming in every month without having to borrow money elsewhere with a really high interest rate.

You need to make sure the money in your emergency fund is accessible anytime, so please please don't put them in stock, bond, or anything like that.

Personally, I put my emergency fund in EQ bank high interest saving account, with 1.25% return. I know it's not a lot but from my research this in the highest for a saving account that you could get in Canada. Ideally, you should have about six months of emergency fund set up for yourself.

In order to calculate this number, you have to be really honest with yourself as for all the expenses that you spend every month.

So every month, I spend $500 on rent, $100 on transportation, $100 on food, $20 on clothes, and $100 on online learning and ebooks. In total, my monthly expense is $820, so I need to put in about $5000 into my emergency fund. 

I know know that I'm very fortunate that i make enough money to cover all of my expenses also have money to put in emergency fund and also to fund other investment sources. 

That is why I want to share with you different ways that you can reduce your expenses, even if you currently living paycheck by paycheck, so the first way that you could do it is instead of eating out, you could try to cook at home and go shopping at Costco. 

In the past, when I go shopping at the regular grocery store, I usually spend about $300 a month on grocery bills, but since I go shopping at Costco, I significantly reduce that expenses for groceries to just about $100 a month. 

Oh another way for you to reduce your expenses is to make your coffee at home, if you're a fan of coffee and cannot live without coffee. 

I bought this from Costco for about $9 when it was on sale. and if you think about it: the lowest coffee that you could buy at Tim Hortons, I mean in Canada, is about $2 for a cup of coffee every day. 

So if you do the math, $2 multiply by 30, so every month, you spend about 60 bucks on coffee alone, and with $9 of instant coffee that I bought from Costco, it could last me about six months. The next step towards financial freedom is to maximize your RRSP investment. RRSP stands for Registered Retirement Saving Plan. 

You can invest in 401k if you are in the United States, or something else if you're not in North America. Basically, putting our money in RRSP will help you delay paying taxes. Say, if I am making $80,000 every year, and I put in $30,000 annually in my RRSP. I will only need to pay taxes on $50,000 income. 

Money in RRSP can't be withdraw without penalty unless you retire or buy your first home or go back to school.

If you're not in the situation that you can put all of your money into an RRSP to reduce the amount of tax you have to pay every year, then TFSA is another option for you, so the idea of TFSA (Tax Advantage Saving Account) is that you don't need to pay tax on the capital gain from the investment hold inside the TFSA account.

Anyways, I'm literally just mixing everything all together at the moment.

You see, a cheese cake that may cost you about $10 to buy from the store could be easily made at home to save money. 

Now we talked a lot about putting your money in RRSP and TFSA for tax advantages, but how could we start investing our money you may ask? I think if you are a newbie in the investment field, then you may not be able to read the financial statements to determine which stocks or bonds to buy. 

In this case, I would recommend investing in an index fund. An index fund is a portfolio of stocks and bonds designed to mimic the compensation and performance of a financial market index. 

Index funds have lower expenses and fees than actively managed funds, such as mutual funds because there is minimal to no involvement of human costs from hiring a dedicated financial manager to manage your fund. 

You may have heard about the well-known S&P 500 index fund, so when you invest your money in S&P 500, you invest in the top 500 companies in the United States.

S&P 500 is considered as a very stable and high return on investment because guess what: how clearly is it that all top 500 companies in the United States fail next year? Personally, I have my money in BMO SmartFolio where my risk tolerance will be measured through questionnaire before I start investing.

BMO Smartfolio has a collection of different index funds, and you also have the option to talk with a financial advisor, at only 0.7 percent management fee. For example, if you invest $1000 into the BMO Smartfolio, you will pay only $7 on management fee.

For a limited time, use the link in the description box below to get $50 cash immediately when you start investing with BMO Smartfolio. 

Another way to make more money towards financial freedom is to continue investing in yourself by taking additional training at work and after you are able to add more values to your current employer.

then consider doing your market analysis to ask for raise.

Employers would be happy to give you a raise if you, bring more values to them because otherwise if you, leave your job then they have to pay a lot to train a new employee and that turnover expense is something that the employer will consider when you ask for a raise because if they fire you and turn you down when you ask for a raise, there are chances that you may leave the company, and they have to pay a lot more money to train a new employee.

Now, we just turn on the oven, and let it warm up for a second. The next thing towards financial freedom is to take on a second stream of income. For example, you can consider starting a youtube channel to share about things that you are passionate about. 

Another way to do it is to opening up a consulting company, or a freelancing service that basically sell your skills to people who may not have the expenses to have a full-time employee to take care of that matter. 

For me, specifically because my skill is in software development, I do a lot of freelancing work for big and small companies in which I help them develop their website, their mobile application or I even help them develop their data strategies as well. 

Last but not least, consider investing in real estate.

Ideally, you can do some rental hacking in which you don't need to pay for any housing expenses. For examples, we bought a house with a legal basement suite, so we could live in a portion of the house where we rent out a part of the house. 

If you are lucky enough to have tenants rent out your property from day 1.

After 25 years, you basically get the house as only 20% of its face value as the down payment that you have to put in when you buy the house. 

I will have an article talking a lot more about how I used data science to evaluate the most profitable property that's gonna bring us a lot of rental income as well as appreciation over time so don't forget to subscribe to my channel, so you will get notified for that exciting video!

Now just put everything in the stove, and wait for 30 minutes for it to be done, and the you have cheesecake ready to enjoy at home and save a lot of money. 

That's it today for the article. I hope that you enjoyed the new way of making articles while I was baking also sharing my strategy: 10 steps towards building a future of financial freedom!

Leave a comment below to let me know your strategy to build a future where you have enough passive income to live a comfortable life without worrying about if one day you may lose your job or something really bad happens in your life.

Also, leave a comment below if you have any questions at all for me. Thank you so much for reading. I hope you have a great day, and I will see you in the next article. Bye!

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