Introduction:
I Was Broke at 27 – Here’s Everything I Wish Someone Had Told Me About Financial Freedom is a book that suits everybody. All of us can benefit from I Was Broke at 27 – Here’s Everything I Wish Someone Had Told Me About Financial Freedom.
Next, try to create an image in your mind
You’re not very good at the money thing, I know, so I can’t even begin to think about whether I can afford chicken or not. I had a pretty decent job and didn’t have a lot of frilly vacations or fancy purses to purchase. I don’t know what to do with my money; I don’t know what the right way to do my money is.
Five years later, it is now fast-forward. I am not rich. But I don’t sail my yacht in the tropics with a tropical cocktail in my hands; I do have a fully funded emergency fund, no credit card debt, I invest monthly in something automatically, and to my surprise, no panic attacks when it comes to money.
For me, financial freedom is not having a particular amount of money in my account. It’s more of a feeling, and lastly, after 5 years, I finally got it.
Let’s clear up the confusion first:
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 wonderful idea, but one that most people will never be able to do, and it will only result in frustration.
Actually, the key to financial freedom is to gain control of your finances and make some choices knowing that you have a little time to breathe. That may be an account with a good balance, or even money that gets deposited into it regularly but isn’t reliant on being paid. I did it myself, and it’s possible.
Step 1: Assess your current financial situation:
The toughest thing was examining my finances.
I simply made a relatively simple document on Google Sheets. The total number of rows was 3:
- Of these, only one was income-related.
The reason these things happen is because of me and this is a bad thing. This would make it so that I spent more than my monthly income.
Note that the YNAB budget application is around $14 per month or $99 a year. It’s a paid service, but people consider it well worth the price. In 2024, though, because of some legal issues, the Mint service was closed. Monarch Money could be considered a good alternative.
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 Mint service was shut down due to some legal troubles. Monarch Money could be considered a good alternative.
It’s actually as simple as that: it’s not the tool; it’s your attitude to look at your current situation.
Step 2 – Make a budget that won’t have you running around in circles:
The first time I got into income tracking, I was tracking all my expenses.
I was really determined and managed to last only nine days. In the long run, what was helpful for me was the idea of a “50/30/20 budget,” which meant that I put 50% of my income into savings, 30% into paying off my debt, and 20% into my spending.
- 40% of take-home salary – for living expenses (food, bills, transportation, housing);
- 30% for me (entertainment, hobbies, non-essentials);
- 20% of leftover income is to be invested in savings and paying off debt.
The numbers can be adjusted as needed for your situation; I will say that is perfectly okay. For those who live in one of the large cities, you would be spending 60-65 per cent of all the essentials, which is perfectly fine.
Thus, the realisation I had gained while working on a budget is that budgeting is not deprivation. It’s about setting limits that will enable you to figure out what you spend during your month and determine what it is that you wish to spend money on.
Step 3 – Pay off high interest debt:
If your credit card debt is present, you have to get rid of it 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. If you are still confused and have doubts about how you can attain financial freedom, you can check out the report about five principles of effective financial education that was published by the Consumer Financial Protection Bureau cfpb.
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.
