Introduction:
I Was Broke at 27 – Here’s Everything I Wish Someone Had Told Me About Financial Freedom is a book that suits everybody. I Was Broke at 27 – Here’s Everything I Wish Someone Had Told Me About Financial Freedom is a book for all.
Now, let us paint a picture in your mind.
You are so bad at dealing with the financial problems that it is hard for you to think whether I can afford chicken or not. I had a fairly good job, and I had no extravagant vacations or fancy purses to buy. I’m not sure what to do with my money, and I have no real knowledge of the proper way to handle my money.
Fast forward five years. I am not rich. I am not sailing my yacht in the tropics with a bottle of a tropical cocktail in my hands, but I have a fully-funded emergency fund, no credit card debt, invest in something every month automatically, and, to be honest, something that surprised me – no panic attacks when thinking about money.
For me, financial freedom is not having a particular amount of money in my account. It’s more of a feeling, and finally, after those 5 years, I managed to get it.
First, let us clear the misconception:
Each time people try to imagine themselves in the state of financial independence, the image that pops into their head is an early retiree at the age of 30 who is enjoying his life somewhere on a beach in the tropics. It’s a great idea, but not one that most people will ever manage to realize, and which will only bring frustration.
Financial freedom in reality is all about being in control of your money and being able to make some decisions knowing that you have enough time to breathe. That could be an account with a decent balance or even some funds that go into it regularly and don’t depend upon the fact that you are being paid. I did that on my own, and it’s possible.
Step 1 – Look into your current financial state:
The hardest step to take was looking into my financial state.
I simply made a relatively simple document on Google Sheets. There were 3 rows in total:
- Only one of them was income-related.
- Secondly, it was the cost.
- The last three differed.
That was my difference. And guess what it was? Negative. Which means that each month I was spending more than I earned.
In case you don’t wish to create a personal tool to see your financial state, you might want to try some applications. You could use them to check your state. Either Mint or YNAB (You Need a Budget) and maybe some money tracking offered by the bank where you keep your account.
Please note that the YNAB budget application costs approximately $14 monthly or $99 annually. It’s a paid service, but people consider it well worth the price. However, in 2024, the service of Mint was shut down due to some legal troubles. Monarch Money could be considered a good alternative.
As you can see, it is not the tool itself that matters but rather your willingness to take a close look at your current situation.
Step 2 – Create a Budget That Does Not Drive You Up a Wall:
My first attempt to manage my income involved tracking every expense. I tried hard, but managed only to last nine days.
What helped me in the long term was the concept of “50/30/20 budget”:
- 50% of take-home salary – for essentials (housing, transportation, food, bills);
- 30% for myself (entertainment, hobbies, non-essentials);
- 20% of leftover income is to be invested in savings and paying off debt.
You can change the numbers depending on your personal circumstances, and I will say it is completely fine. If you are living in one of the big cities, you would have to spend 60-65 percent on all essentials, which is completely alright.
Here is the realization I got when trying to create a budget: budgeting does not mean deprivation. It means creating boundaries that will help you understand your monthly expenses and decide beforehand what you want to spend money on.
Step 3 – Pay Off High-Interest Debt:
If you have credit card debt at the moment, you must pay it off ASAP.
The rate on credit card debt is usually 20-30%. If you owe $5,000 at 2a 5% annual percentage rate and you only pay the minimum monthly fee, you will accumulate thousands in extra interest charges within a few years, and it will take ten years or even longer to pay the debt off.
There are two ways of dealing with such debts:
- “Snowball” method – you pay all minimums and put all extra cash towards the debt with the lowest remaining balance.
- ”Avalanche” method – you again pay all minimums and put extra cash towards paying off the debt with the highest rate of interest.
Which method you choose depends on your own preferences. The avalanche method saves more money, while the snowball method helps maintain your motivation. I personally preferred snowball since it helped me stay motivated.
Step 4 – Build An Emergency Fund First:
Previously, I believed an emergency fund was something that was required solely by paranoid people. Then, my transmission broke, and I ended up putting almost $3,000 on my credit card as I had nowhere else to turn to.
This error cost me eight months of additional work.
The common advice is that an emergency fund should be enough to pay off all expenses within 3-6 months. I found it hard to follow, so I decided to build an initial one and make it equal to $1,000.That initial fund should be deposited into a high-yield savings account. Until 2018, it was quite impossible, but now some accounts can yield even 4-5%. Good banks with such rates include Marcus by Goldman Sachs, Ally Bank, and SoFi.
Step 5 – Start Investing in the Stock Market:
At some point, investing in the stock market seemed to me like a form of gambling and was associated only with rich people. However, I wish someone had told me earlier that it is accessible to anyone who wants it.
You don’t have to know much about investing; the easiest way for the novice to deal with it is to open a Roth IRA account (in case you are American, your salary level allows you to contribute), and deposit your money into an index fund or target date retirement fund. If you still do not get how you start investing in any field, then check out this article: How to get started investing with little money. After reading this article, I am sure your main concern about investing will be sorted.
Roth IRA has the following benefits:
- You do not pay any taxes on the money growing inside it.
- Contributions are taxed, so you will not pay anything when withdrawing them.
- Index funds do not aim to beat the market; they simply replicate it. In general, the stock market grows around 7-10% per year.
I currently use Fidelity Investments and Vanguard platforms for my portfolio. Fidelity has the advantage of having no minimum account size requirement. Again, do not wait until you accumulate a fortune. Start investing a small amount monthly. Even if it is $25, it will still help you start the process.
Step 6 – Automate Transfers to Savings:
The most effective thing I ever did to improve my financial situation was to set automatic transfers from my bank account. As soon as my salary was credited into my account, some money was transferred to
- savings account,
- retirement funds,
- additional debt repayments.
By automating the process, I could not touch that money anymore and thus could not waste it. Automatically moving money from your bank account to savings or investments is called “paying yourself first”. It may seem scary initially, but it works wonders.
Step 7 – Increase Your Income Level:
Reducing expenses is one thing, and we have already discussed that. However, increasing your income is the accelerator. And the good news here is that you do not necessarily have to get a second job to earn extra cash.
Here are some of the actions you can consider taking:
- Ask for a raise. Do some research online to see the market rate for salaries in your field. Glassdoor and Levels. fyi are great platforms for finding out more about salaries.
- Upskill and ask for a new position with a better pay grade. There are many online courses available on such platforms as Coursera, LinkedIn Learning, and YouTube.
- Sell some of your items on online marketplaces. You can earn some additional cash selling on Facebook Marketplace, eBay, etc.
Freelance your talents or expertise. If you possess some knowledge of writing, coding, marketing, graphic design, photography, bookkeeping, teaching, or other similar skills, there is always a market for that. Check Upwork or Fiverr websites for freelance opportunities. In my case, freelancing helped me pay off one loan two years before planned.
Mistakes I Made That Cost Me (So You Would Avoid Them):
- Waiting to have more money to start managing them effectively. That never happened, and eventually, I managed to start anyway despite a low income.
- Lifestyle inflation upon receiving a raise. I received a raise and increased my expenses by 20%. Next time you receive one, try allocating the other half.
- Buying individual stocks of companies I knew nothing about. I spent $500 on stocks that seemed to be on the rise, and ended up losing $320 on them.
- Failing to negotiate my salary. During my first proper job, I probably left on the table between $3,000 and $5,000 per year just because I could not negotiate properly.
- Ignoring my company’s match to my 401k. For two years during my employment, I contributed less than enough to obtain my company’s matching contribution. This was money for free.
What Financial Freedom Really Means for Me?
For me, financial freedom is not a certain sum in my bank account. It is a state of peace and security:
- Looking through my bank account does not make me anxious.
- Planning trips does not cause financial anxiety anymore.
- Knowing that even in case of unexpected unemployment, I can support myself for a period of six months or more;
- Sleeping soundly knowing I will wake up tomorrow without worries regarding my financial future.
It took me roughly three years to reach this point, and I am still improving my financial standing, aiming at retiring sooner than the official pension age and buying property for myself. But, as you can see, financial freedom does not mean the absence of worries. It is a feeling.
Resources You Can Consult Without Going Overboard:
Here are resources I find useful when dealing with finances and managing my income:
- r/personalfinance subreddit. It has a huge wealth of information, including a rather useful guide for beginners.
- “The Psychology of Money” by Morgan Housel. Best book on finances I have ever read.
- “I Will Teach You to Be Rich” by Ramit Sethi is a great, practical resource for managing your finances.
- Nerdwallet. A platform with numerous comparisons of different financial products, including savings accounts.
- Numerous YouTube channels, such as those of Graham Stephan and Andrei Jikh.
However, there is one caveat to keep in mind. Whenever someone promotes a course on how to become financially successful, think twice. The best advice is often free and straightforward, and if someone is promoting a product, it might be just another business move.
Realistic Starting Point:
If, by reading my tips and tricks, you felt lost and overwhelmed, there is one action I want you to perform today. Open your phone or laptop and create a sheet (in any editor) with your monthly income and primary expenses. That will be the first step in building your financial stability.
