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De-Cluttering Article (Collectors)
TEN STEPS TO FINANCIAL FREEDOM
By Ramona Creel of
OnlineOrganizing.com
Financial freedom -- that’s the American dream, isn’t it? But how many of us
actually stand any chance of achieving this grand and glorious goal? Buried in
credit card debt, living in houses we can barely afford, spending more than we
make and putting nothing away for the future -- I don’t see it happening. But
financial independence is well within our grasp -- we just have to make a few
fundamental shifts in the way we view money and material possessions -- and in
the way we choose between instant gratification and future security. Here’s how
it works.
UNDERSTAND WHAT FINANCIAL FREEDOM REALLY MEANS
What do you think of when you imagine being financially independent? Living on
an island in the South Pacific in the lap of luxury, never having to work again?
This might be part of the reason why so few of us attain financial independence!
Financial freedom has less to do with wealth and more to do with liberty from
monetary worries. Someone who earns $10,000 a year can achieve financial
independence as easily -- sometimes more so -- than a person who earns 30 times
that. It’s all a matter of perspective.
Let me share my vision of financial independence. Imagine having no debt -- no
credit card bills, no car payment, no loans, no mortgage. Imagine having reduced
your regular monthly expenses to an almost unbelievably low level, and having a
healthy Nest-egg stashed away for emergencies. You live in a reasonably-sized
home that is paid off and inexpensive to maintain. You receive at least some
income from your steady habit of investing -- dividends or interest -- yet you
still have plenty to cover you into retirement and old age. You live well within
your means, buying nothing that you can’t afford to pay for at the time. And you
are frugal and deliberate with all of your spending decisions, buying only
because it will enrich your life and not because you are trying to keep up with
the Jones’s.
Finally, you don’t have to work if you don’t want to -- at least not full time.
You have plenty of time to pursue other interests without feeling the pressure
to "pay the bills." You live a life of fulfillment, with a minimum of stress.
Sound like a pipe dream? It’s a heck of a lot more realistic than the idea of
retiring as Bill Gates to an island! And a lot of people are shifting to this
philosophy of voluntary simplicity in an attempt to escape their financial
burdens. But more about that later!
CHANGE YOUR ATTITUDE ABOUT MONEY
The first obstacle to financial freedom is the way we view money. We, as a
society, are incredibly hypocritical about our finances. We place such
importance on income and material possessions -- we almost tend to define
ourselves by what we make and what we own. At the same time, debt has become
commonplace, accepted, almost a badge of honor. People talk about their
financial liabilities in the same way that they talk about the fact that they
are working an 80-hour week -- with a kind of sheepish pride, like these facts
make them important. But when folks try to talk about steps they are making
toward reducing debt and building wealth -- especially when it comes to
simplifying, cutting back, and stepping out of the rat race -- the audience
often grows uncomfortable, as if this is a traitorous way of life.
All in all, it’s a very unhealthy approach. We’ve overcome the taboo of dealing
openly with sex -- we need to do the same with money. And the only way to do
this is to understand that money is nothing more than a means to an end. The
accumulation of wealth is meaningless in and of itself. Money is only valuable
in terms of the NON-MATERIAL things it can buy you -- unfettered time, security,
the freedom to really enjoy your life and the people around you. But we also
have to understand that money is not the root of all evil. It has no qualities
beyond the purpose for which we use it. Only when we relieve money of its
falsely elevated (or lowered) status can we see it for what it really is -- a
tool.
RE-EVALUATE YOUR SPENDING PRIORITIES
So, with this fresh perspective, let’s talk about how you spend your money. Look
honestly at the things you own, the bills you pay, the debt you incur. Are your
spending habits in alignment with your values? Here’s an example of what I mean.
Let’s say you claim that spending time with your children is a priority. But
over the years you have chosen to purchase an expensive car, two homes, a boat,
and a houseful of "stuff." You eat out regularly at high-end restaurants, you
take expensive vacations, and you are carrying a tremendous amount of debt. And
you feel that you have to work 70 or 80 hours a week -- evenings and weekends --
to "pay the bills" and you rarely see your kids.
At first, it may have seemed that you were providing them with a good life, but
wouldn’t they benefit more from your time and attention? In hindsight, were
those really the wisest spending decisions?
So achieving financial independence is all about making value-based spending
decisions proactively, before you regret having gone the wrong way. It requires
avoiding impulsive spending and making CONSCIOUS DECISIONS about how to invest
your precious resources. It also means moving beyond the insane need to keep up
with your peers -- to own the newest, sexiest, and most expensive "toys" out
there. And you really have to view money as more than cash –-- you need to see
it in terms of the time and energy it takes to earn it.
PLUG YOUR SPENDING LEAKS
Think about all the "stuff" you buy everyday without really paying attention --
snacks at work, a magazine when you stop for gas, that cup of coffee on your way
in every morning. And don’t forget about the expenses you are racking up because
of financial disorganization -- interest charges on your credit card debt, late
fees because you forgot to return that movie on time, overdraft charges because
you didn’t balance your checkbook.
All of these fall into the category of unconscious spending. You just do it
because it’s a habit. And although you think that a dollar here or fifty cents
there is insignificant, it can really add up.
What’s your vice -- eating out when you are feeling lazy? Buying every new CD or
magazine that comes out? Procrastinating on paying your utility bills? If it’s a
drain on your finances without providing you with any tangible benefit, do your
best to eliminate it. Get organized, sign up for an automatic bill-paying
service, plan your time better -- do whatever you have to get it together.
But "spending leaks" that give you pleasure and satisfaction can still get in
the way of other priorities. Decide how often you can reasonably afford to
indulge and still reach your other financial goals. Also look for unnecessary
convenience expenses -- things that we spend money on because we are
overwhelmed, too busy, or just worn out. Perhaps by re-evaluating how you use
your time, you might discover that many of these expenses are just symptoms of
misplaced priorities.
SPEND LESS THAN YOU EARN
This sounds fairly simplistic and dangerously like common sense -- but it’s
amazing how many of us fail to stick to this one basic principle. I partly blame
our culture of instant gratification -- as a society, we are nearly incapable of
sacrificing in the present for a benefit in the future. Let me tell you a story
to illustrate. I have some friends in their twenties who wanted to buy their
first house. But instead of choosing a small, affordable "starter home," they
built a 5-bedroom, 3-bath house with a pool. This is the sort of home our
parent’s generation hoped to have after gradually working their way up the
housing market over a period of decades.
But it strikes me as tremendously more house than a young couple with no kids
really NEED. Not to mention the fact that my friends are now deeply in debt,
their relationship is suffering because of money troubles, they have put all
savings and investing on hold, and must forgo the recreational activities they
used to enjoy.
So the point of this tale is not to judge my friends. I just don’t understand
how this purchase has improved their quality of life -- in fact, it seems to be
actively detracting from it. I am not suggesting that my friends don’t deserve
this house, I simply question whether or not they needed it right now. So many
other financial and personal goals are put on hold because of a purchase that
could have waited several years without the least bit of pain.
And the really ironic part is that the impetus to make these kinds of purchases
usually comes from an outside influence, rather than our own personal values. In
other words, our spending decisions are not always our own. But this trap can
easily be avoided if we choose to live within our current means rather than
counting on future earnings to pay off our debts.
PAY OFF YOUR DEBTS -- NOW!
Your first priority on the road to financial independence should be to become
debt free. While you might earn as much as 10-15% on your investments, many
loans and credit cards carry much higher interest fees. So no matter how much
you scrimp and save, you still end up at a loss if you have outstanding debt.
Suspend your investments, top putting away money in savings, just temporarily,
and focus all of your financial energies on your debts. Plan to knock out the
highest interest debt first, then move to the next highest and the next, until
you have cleared them all out. No excuses, no rationalizations, just do it!
USE CREDIT CARDS JUDICIOUSLY
The compulsion to have the best, the most, the newest -- and to have it
immediately -- forms the basis of the lending industry. Why else do people take
out loans or use credit cards, if not to buy things that they can’t afford at
the present time? But you are taking a big risk when you ASSUME that you will be
able to pay these purchases off at some point in the future. What if the economy
tanks or you lose your job? And if you can commit to paying off a debt after the
purchase -- plus interest -- why can’t you commit to saving the money ahead of
time? Your purchase will cost less in the long run -- and you might even earn a
little money as your cash accumulates interest in the bank!
I am not diametrically opposed to the use of credit cards -- they can be a
terrific way to consolidate your purchases, simplify bill-paying, and keep track
of your expenses. Not to mention the fact that purchasing your basic necessities
-- groceries, gas, etc. -- with a charge card is a fabulous way to build good
credit. But you have to pay your ENTIRE BALANCE off each month -- otherwise you
are simply flushing money down the toilet on interest charges.
REDUCE YOUR MONTHLY EXPENSES
Now we get into the real meat and potatoes (I say that metaphorically, since I
am a vegetarian) of becoming financially free -- deciding which expenses are
necessary and which are simply eating up your extra money. And I’m not just
talking about cutting back on the number of times you eat out each week or how
much you spend on your vacations. In order to really trim the fat from your
budget, take a good hard look at those expenses you’ve always thought were
unchangeable. If you are spending more than 30% of your income on housing (and
even if you’re not), maybe you need less expensive housing. Is it really
necessary that you and your wife and one child live in 50,000 square foot house?
And if you had to make a choice between the house and not having to work 80
hours a week (or not having to work at all), which would be more important to
you? Can you get by on with one car? Would your vacations be just as pleasurable
if you flew coach or stayed in a 3-star hotel?
We get accustomed to demanding the very best because we feel that we deserve to
be pampered after all of our hard work. But if we didn’t pamper ourselves so
much, we might not have to work so hard in the first place.
SET UP AN EMERGENCY ACCOUNT
What kinds of expenses tend to throw off our budgets and cause us to rack up
unwanted credit card debt? The UNEXPECTED kind! Think about all the times you’ve
had a car repair or medical bill or other expense creep up on you when you
didn’t have any cash on hand. And what happens when the economy tanks and you
are "downsized" out of a job. What will you live off of? The solution is easy --
set up an emergency savings account to cover you when disaster strikes.
You should put away at least 6 months worth of income -- a year is even better
-- so you have something to fall back on. Of course, this kind of saving comes
after you have paid off all of your debts -- just start taking the money you
were putting toward credit cards and loans and begin socking it away in the
bank. And remember, this money is only for emergencies -- if you want to take a
vacation or buy a new stereo system, set up a separate savings account for
purchases.
DEVELOP THE INVESTING HABIT
Okay, so you’ve paid off all of your debts, you have a nice nest egg put away
for emergencies, and you’re saving ahead of time for major purchases so you
don’t have to use your credit cards. The final step is to really put money away
for your future. If you want to get to a point where you don’t have to work and
can still live comfortably -- whether you expect that to happen at 45 or 65 --
you must start planning for it as soon as possible.
There’s this great little invention out there called compound interest that
allows you to earn money not only on what you have invested, but also on the
interest you’ve earned in past years. This allows you to geometrically increase
your earnings in a way that could easily allow you to retire a millionaire. But
only if you follow three basic rules.
First, invest REGULARLY -- putting a set amount of money aside each month for
your future. You’ll thank yourself for setting up this habit later. Second,
don’t attempt to TIME the stock market --- putting money in when prices are low
and yanking it back out again when they are high -- you’ll end up losing out in
the long run. Plan instead to invest for the LONG-RUN. Over any given 20-year
period, long-term investors always end up making money -- regardless of dips and
plunges in the stock market. Remember that over the last 75 years, the stock
market has seen an average gain of 10% per year -- when you look at the big
picture.
Finally, DIVERSIFY. The people who lose big money are the ones who put all of
their eggs in one basket -- sinking everything they own into one company. As
we’ve seen in recent years, even the so-called "eternal winners" -- the
blue-chip stocks -- can lose in a bad market. But by spreading your money around
-- lots of different industries, different sized companies, foreign and domestic
investments, real estate, stocks, bonds, etc. -- you will protect yourself
against major losses down the road.
So I will leave you with one final thought -- it’s never too late to get your
finances in order. And the sooner you begin, the sooner you will be able to live
without the burden of debt, fear about the future -- the sooner you will achieve
financial freedom!
**************************************************************************************
Ramona Creel is the founder of
OnlineOrganizing.com -- offering "a world of organizing solutions!"
Visit
OnlineOrganizing.com for organizing products, free tips, a speakers bureau
-- and even get a referral for a Professional Organizer near you. And if you are
interested in becoming a Professional Organizer, we have all the tools you need
to succeed. (Copyright 2001, Ramona Creel)
**************************************************************************************
 
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