A Crash Course in Financial Freedom

Recently, I got a message from Natalie who explained that as part of a financial preparedness night, she'll have ten minutes to speak about financial freedom. Her question to me was, “What would you talk about if you only had ten minutes?”

Only ten minutes? I find it difficult to introduce myself in that little time, but I'm up to the challenge. So fasten your seatbelts. Here's a ten-minute crash course in financial freedom.

SAVE. Don't confuse saving money with spending less, as in “I save money when I buy things on sale.” You're not saving at all; you're just spending less. Saving money means that you actually put money into a safe place for some future time. Do that. Starting right now and forevermore make it a rule that you will put some amount of your paycheck into a savings account before you spend any of it. Make it automatic and you won't miss what you don't see. Goal: 10% of all you receive goes straight into savings.

GIVE. Give away the same amount as you save. Just give it away — no strings attached as an act of gratitude for what you have, how you are blessed. Goal: Give back 10%.

LIVE. Rein in your lifestyle so that it fits into 80% of your net income. Reduce your spending in every area of your life by a small amount and you'll be able to achieve this, and probably sooner than you ever dreamed.

CREDIT. You need only one credit card. Put the others away so you can't use them. If you have a balance on the one card you keep, don't carry it with you. You've given up that privilege until you're able to pay it down to $0 every month.

DEBT. The only debt that is safe for you to carry is secured debt (mortgage, car — anything with collateral). All others are dangerous to your wealth. Make a plan to pay off all of your credit-card debt quickly. See this as critical to your financial health.

CASH. It's proven that you'll spend about 30% more if you depend on plastic to pay for day-to-day spending. Leave the plastic at home. Live as much as possible with cash. Inconvenient? Yes. That's the point.

PLAN. Society wants you to believe that living spontaneously brings freedom. Just the opposite is true. You need a budget (which is just a way that you “pre-spend” your paycheck on paper) so that you know ahead of time where your money will go. Write it down and then stick to it.

GET SUPPORT. You need to know that you are not alone; there are thousands of people getting control of their financial lives, too. Find a website like Debt-Proof Living or one of countless personal financial blogs like Get Rich Slowly. Sign up, visit daily. Get involved to stay on track.

There you go. If you follow these eight simple steps to manage your money, I guarantee you'll find financial freedom. Whew! Did we make it in under ten minutes?

Note: Sierra recently reviewed Hunt's How to Debt-Proof Your Marriage. In the past, J.D. has written about Hunt's notion of using a freedom account to prepare for the unexpected.

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Van Dwelling Larry
Van Dwelling Larry
9 years ago

Mary, you are so right about making your savings automatic. My wife and I do this for all of our savings, including 401k, 457 plan, property tax account, and emergency savings. If you don’t set it up to come out automatically, then it just seems to disappear for all of the “little things” that come up in life. I really enjoyed this post. Thanks to JD for putting it on GRS.

Dink
Dink
9 years ago

Advice like this always includes “Give” — I appreciate what people giving this advice are trying to do but you must realize that a lot of people just roll their eyes at this. If someone is in need of deep financial advice, living paycheck to paycheck, buried under debts, advising them to give away 10% of their income is like a slap in the face. My advice would be to not think about giving until you’re debt-free. If a person gets great karmic or religious satisfaction out of giving, and they already do give some of their income away despite… Read more »

Amy
Amy
9 years ago

I too found it odd that “give” is second on the list when you yourself admit monetary giving is not your strongest area. I agree with Dink – take care of yourself first, and get your financial house in order, then start helping others. Also, giving time is just as, and in some cases more valuable than, giving money.

Tony
Tony
9 years ago

Mary,

I’d like to get your opinion on a type of debt that you didn’t mention.

If the only debt that is safe to carry is ‘secured debt’ as you call it, where do student loans fit with this?

Are they ‘unsafe’ like credit cards?

Either way I’ve made it a personal goal to get rid of them as soon as possible, I was just wondering what your thoughts were.

JD Lusan
JD Lusan
9 years ago

Pretty cool. Short and sweet. I agree very much that carrying cash is the best way to have control of your money. Sure it is inconvenient, but that prevents impulse purchases.

Everyday Tips
Everyday Tips
9 years ago

I often wonder if I spend more when using a credit card vs. cash. I would buy the same regardless for some things like gas for the car, or an appliance. Maybe I will experiment for certain things…

Luke
Luke
9 years ago

Dink/Amy –

It clearly states give as a ‘goal’ (not an instruction/necessity) and as far as I can see, the points aren’t listed in order of importance?

Slackerjo
Slackerjo
9 years ago

A few years ago, I decided that no more Christmas gifts for my family. It’s hard to shop for anyone with every gadget under the sun so why not use the money to help someone else? I certainly don’t need anything and if I do, I can afford to just go out and buy it(in cash of course). So I give money to people who really need it and it takes me 15 minutes to do my Christmas shopping. That’s how I take care of ‘giving.’ I do agree, if you don’t have the money for charity, donating your time… Read more »

Monica
Monica
9 years ago

Just a thought here. Could “giving” for the financially strapped be a good thing? Even if all someone can afford is a $1 in the collection plate once a month, perhaps it could serve as a reminder that as much as they are struggling, someone has it worse. Perhaps that bit of perspective could be a bit of encouragement to continue doing everything they can to get to a more secure financial position. Regardless, I agree that giving “time and talent” when someone is in serious financial trouble is just as valuable as putting money in the collection plate and… Read more »

Becky
Becky
9 years ago

“It’s proven that you’ll spend about 30% more if you depend on plastic to pay for day-to-day ” Maybe this is the case for most people, but not me. Pretty much everything I buy is carefully scrutinized. I think paper money is disgusting, beyond just inconvenient. And, frankly my time is worth way more to me than having to go to the ATM &/or doing the “envelope thing”. I worked as a bank teller. This was the most degrading job I ever had, and it only frustrated me to deal with people who were SO financially incompetent, only to then… Read more »

Becky
Becky
9 years ago

RE: It’s proven that you’ll spend about 30% more if you depend on plastic to pay for day-to-day

Maybe this is the case for many, but not me. Paper money is yes, inconvenient (and my time is worth money!) and very dirty/disgusting (worked as a bank teller – worst job ever – and I should know). I plan all my dollars I spend, and with paper money, I feel like it’s “free” money, that isn’t as easily digitally tracked, and therefore I more readily spend it than just whipping out my card.

Sam
Sam
9 years ago

I like a lot of this advice, especially the planning part. But like others I find the giving advice inappropriate for those who are in debt. Get yourself out of debt first, establish a good size emergency fund, commit to a budget or spending plan and only then include charity in your budget. I have this same problem with Dave Ramsey, it makes no sense to me to donate to charity if you can’t pay your bills or your are carrying debt. I also don’t think it makes sense to carry a credit card if you are in debt. And… Read more »

lawyerette
lawyerette
9 years ago

good advice although somewhat simplistic when it comes to debt…a car loan is better than (reasonable) debt for a graduate degree? Um, don’t know that I agree with that one. This is a recurring issue I’m seeing with a lot of personal finance advice. Nobody takes into account the current situation of most folks in the under-35 crowd – lots of us we have substantial education debt. It’s another blog for the reasons why so many young people have so many student loans, but the fact is that we have them and nobody seems to give any good advice on… Read more »

honeybee
honeybee
9 years ago

I don’t mind the “Give” advice. We need to be constantly reminded of this. (Or at least I do.)

Nice, quick morning blast of ideas. Thanks.

Adam
Adam
9 years ago

“DEBT. The only debt that is safe for you to carry is secured debt (mortgage, car – anything with collateral). All others are dangerous to your wealth.” Important caveat to this is student loans, in a reasonable amount (usually summed up by the amount your starting salary is expected to be upon graduation, don’t borrow more than that). I fail to see how this is worse than a car loan for a car that depreciates 20% or more per year versus an education that will generate increased income for the rest of your working life? Obviously exceptions abound but in… Read more »

Rktman
Rktman
9 years ago

Giving is good advice if you want to be blessed. Giving for a christian is the correct thing to do. For me it has been a barometer of how tightly I’m holding on to these temporary things. The more I hold on, the fewer doors open up. Dave Ramsey explains it as the “open hand”. Very good article. Thanks.

Kevin
Kevin
9 years ago

I was thrown by the “Give” item, too. Is this a list of how to achieve “financial freedom”, or how you should live your life after you’ve reached “financial freedom?” If it’s the former, then the “give” item makes no sense – it can only serve to delay achieving the goal. If it’s the latter, then I can respect that. If I’ve achieved financial freedom, and I have some left over that I don’t need, why not give it away? But if that’s the case, then why is “save” on there? Once you’ve achieved financial freedom and are living off… Read more »

Kevin
Kevin
9 years ago

@Monica: “Even if all someone can afford is a $1 in the collection plate once a month, perhaps it could serve as a reminder that as much as they are struggling, someone has it worse.” That reasoning has always bothered me. First of all, I don’t need to engage in self-flagellation to remember that there are people worse off than myself. I’m well aware of it. Pointlessly dragging myself down a notch doesn’t serve to drive that point home for me. Secondly, while there are plenty of people worse off than myself, I am also worse off than many other… Read more »

Techbud
Techbud
9 years ago

Isn’t most finance advice simple? Live within your means, prioritize needs over wants.

I have to agree the give is a goal and only should be started after you debt free.

April W.
April W.
9 years ago

Although I agree with all the points, I prefer to ‘give’ with my time instead of my money. I find that giving of my time helps me to see life from a different perspective, that there are those who would love to have the kind of life that I enjoy. I’m still in debt and slowly crawling my way out, but I feel giving of my time helps not only the recipients, but also my sense of balance.
Just my two cents.

Rob Bennett
Rob Bennett
9 years ago

What would you say if you only had one minute?

I would stress the importance of choosing a highly motivational saving goal (just about anything other than financing an old-age retirement!). If you have a highly motivation goal in mind, there’s a good chance that you will go to the trouble to figure out the rest.

Rob

Steven Grey
Steven Grey
9 years ago

A see a lot of people taking issue with the Give part. Living a Debt free and financially free lifestyle means having self control. I disagree with the statement: “that a person buried in debt isn’t blessed with an abundance.” You are just not managing your abundance well. The entire point is to develop self control and learn to say no. Giving, whether to God, Friends, Strangers, or Cause is a physical manifestation of the attitude that I am not ruled by my finances. With anything there are always exceptions to the rules, but I found that the people in… Read more »

Carly
Carly
9 years ago

I think the idea about giving is perfectly fine if you’re in debt/not making much money. I’m a recent college grad in a bit of limbo. I don’t make a lot of money, but I also don’t have any debt (loans, credit cards or otherwise). In addition to my jobs, I sell things on ebay, and I also choose the option to donate a portion of the sold price. In addition, anything I’m getting rid of (old clothes, etc.) that I can afford to, I donate to a local thrift store that runs an animal shelter. I also volunteer my… Read more »

Kandace
Kandace
9 years ago

Mary, I liked your post. Succinct and to the point. Would be good to give to those just starting out on the path of earning.

While the GIVE may be harder when one is in debt, if giving doesn’t become a part of life early on, it’s harder to pick up later. One could ask themselves when they have enough to give? When the bills are paid, the mortgage is paid, then there’s retirement or grandkids or travel.

Giving should be part of the process from the start.

Spedie
Spedie
9 years ago

I believe that car debt is no good, and neither is student loan debt. I mirror Dave Ramsey when it comes to house debt. I have been laid off twice in less than 2 years. My husband has been laid off once in that time. If not for having NO loans on our two automobiles, they most certainly would have been repossessed. Our FICO’s would have taken a beating, to say the least. Instead, our FICO’s remain steady. I come from a family that is “pay as you go”. Therefore, I got my BS degree with my own sweat and… Read more »

Meep
Meep
9 years ago

I think Giving should not be on the list. It falls in the category of religious, political, and/or personal decisions. I don’t think these have a place amongst general financial advice any more than having your house blessed, purified, and/or exorcised belongs on a housing maintenance and repair site.

You could also burn 10% of your money to a strange god, throw it off a cliff while standing on one leg chanting an obscure mantra, or send it to Sarah Palin, that is also your choice and entirely personal. See how quickly this can get offensive and heated?

Tonya
Tonya
9 years ago

It’s obvious to me that those who are criticizing giving to others while still in debt have never actively tithed or given to charity on a regular basis. Mary is a deeply religious Christian woman who believe that no matter your situation, there are others who are worse off. By giving, you are helping others and remembering the blessings that you have. I have a roof over my head and food and clothes, things that many don’t. When I was going through a difficult divorce, my religious leaders told me the best thing to help me through this time was… Read more »

John
John
9 years ago

Quote: “put all you can into your debt and savings” Quote: “Donate your time if you feel like you need to give back while still in debt” So its ok to give time but not money when you are in debt? If you say put all you can in debt and savings then why not insist that they put all their time into making more money to then pay off debt and put into savings. Secondly, giving can obviously change your mindset and attitude about money and spending. As an example giving may make you feel good that you’ve done… Read more »

JW
JW
9 years ago

So does the saving 10% include retirement or is it 10% after retirement contributions?

I’ve read that figure in several places, “save 10%” and it never clarifies if that includes retirement or not.

Billy
Billy
9 years ago

“The only debt that is safe for you to carry is secured debt (mortgage, car – anything with collateral). All others are dangerous to your wealth.”

I really have to disagree with that. I think it’s dangerous to your wealth *not* to have debt. Although I personally would never take on debt to start a new business, I would take on debt to expand an existing, profitable business in a heartbeat. Many SBA loans and corporate bonds are unsecured. If you forego these because of debt aversion, you are really slowing down the growth of your business.

Kevin
Kevin
9 years ago

This is silly. Yes, of course you can make a case for giving based on MORAL arguments. But this is not an article about “how you should live a moral life,” – it professed to be an article about financial independence. As such, none of the moral arguments of the virtues of giving are relevant. The bottom line is that giving money away detracts from achieving financial independence. It in no way accelerates it. Its inclusion in this article is merely a thinly-veiled moral directive. It is clearly and obviously completely counter to the supposed objective of the article –… Read more »

KMJ
KMJ
9 years ago

@13 Lawyerette and @15 Adam — I agree. The original poster’s assessment of DEBT is not entirely accurate. Student loans are typically unsecured debt and, used wisely, may potentially be a good investment, but obviously not a gaurantee. I admire the people that “don’t believe in debt” but if you ever want to go to medical school or law school, you might have to believe in making an exception to that rule. Using a credit card or even going to the doctor is also a form of unsecured debt. Who is going to stop doing that? If you need to… Read more »

Janice
Janice
9 years ago

I’m with Spedie on this. These days, it’s too easy to lose everything once you lose your job which is the easiest thing of all it seems to lose. If more people had this attitude of “pay as you go” instead of entitlement, we wouldn’t be in servitude to the banks and credit card companies. The point is, instead of haggling over what kind of debt, or giving or no giving, to have as little debt as possible so that you can live your live in freedom no matter what the circumstances. This just makes sense.

Kevin
Kevin
9 years ago

@Steven: “Giving, whether to God, Friends, Strangers, or Cause is a physical manifestation of the attitude that I am not ruled by my finances.” But Steven, if you’re in debt, you are “ruled by your finances.” When you’re in debt, you do not have the freedom to simply decide to pack everything up and go live in the woods. You owe people. You are indebted to others. The Bible says “The borrower is slave to the lender,” and so if you are in debt, that’s a form of slavery. You are “ruled by your finances,” until you pay off your… Read more »

NoTrustFund
NoTrustFund
9 years ago

@ JW, I was wondering the same thing. The 10% number also seems low to me. In terms of a goal, I have often heard 15% retirement and then ADDITIONAL savings on top of that for other savings goals. I agree that it feels good to give even if you have debt yourself, but unless you are down to only mortgage debt, 10% does seem high. When I make charitable contributions, I strive to give enough so I notice it in my budget, but not enough to derail my finances. 10% if you have major debt seems like it would… Read more »

Katy @ The Non-Consumer Advocate
Katy @ The Non-Consumer Advocate
9 years ago

My family sponsors a girl in Zambia through Childfund and it costs only $29 per month. We don’t have much extra cash floating through our bank accounts, but this amount is entirely feasable.

If we have to give up a restaurant meal, it’s nothing compared to what this small amount can do for this particular child.

We have been giving to this specific child for four years, and the updates are an incredible reminder of how lucky we all are.

Katy Wolk-Stanley
“Use it up, wear it out, make it do or do without”

Kevin
Kevin
9 years ago

@Katy:

Good for you, but how much of that $29 is actually making it to Zambia, and how much of it is ending up in the pockets of Childfund executives?

And of the money that does make it to Zambia, how much of it is buying food and medicine, and how much of it is buying Bibles?

Luke
Luke
9 years ago

Kevin @36

I think you’re bringing your own prejudices to the table here – a quick bit of research shows that the organisation in question claims to have not ‘evangelized’ for 30 years:

http://www.childfund.org/myths_and_facts/

I’m not a supporter of ChildFund, but it is fair to look at both sides of the coin.

Rosa
Rosa
9 years ago

My husband and I give 10% pre-taxes every month. We were both taught to do so since we got our first dollar bills for our birthdays when we were toddlers. To wait until we were “debt free” or “financially secure” to start giving would mean we would have lost the valuable lessons learned from giving over the past 25 years of our lives. Being in control of our personal finances is a way to bring happiness and peace to our lives. If that is the goal, then giving, which also brings us that happiness, is something we must do now,… Read more »

Pat @ Do Not Wait
Pat @ Do Not Wait
9 years ago

Kevin touched upon an interesting point. My biggest issue with donating money to big charities is that I simply don’t know and don’t understand where the money is going. I started thinking this way when my friends sister got a job working for a major charity. I was proud of her. Then I found out that she made $70K a year. It’s a rather interesting situation I find.

Cubicle Warrior
Cubicle Warrior
9 years ago

Hi there 🙂 Excellent post! I used to carry balances on my credit card and it affected me very much because it was like a dark cloud hovering above me everyday. Needless to say by starting to pay my balances down to $0 that’s where I started to feel what Financial Freedom really is about. My next goal is to be able to get more income so I can hopefully have more time for myself and my family. Also, one “technique” that I use right now is that I ask myself whether or not what I’m buying on credit can… Read more »

Kent @ The Financial Philosopher
Kent @ The Financial Philosopher
9 years ago

This (financial freedom) is an important conversation so I applaud you for engaging in it. With that said, I could do a meeting on Financial Freedom in less than one minute. Here’s what I would say to the meeting attendees: In one minute, when you get home, or soon after, write down your own definition of freedom but don’t use any financial terminology. Once you’ve created your own definition of freedom, use money as only one of the tools to arrive at this. In fact, you may discover you are already “free” without money. End of meeting. Thank-you. Now go… Read more »

CB
CB
9 years ago

Your finances and, therefore, your financial independence, cannot be separated from the rest of your life. Your life includes your emotions, your desires, your dreams, your indulgences, your addictions, your morals, your physical well-being, etc. You can’t partition one portion of your life so as to not be influenced by the rest. So whether you give or do not give, you can’t separate that decision as purely financial or purely moral. Whenever you see people discuss financial freedom, you never see a magic number floating around as the number to attain financial freedom. It’s always about a lifestyle that is… Read more »

Des
Des
9 years ago

“DEBT. The only debt that is safe for you to carry is secured debt (mortgage, car – anything with collateral). All others are dangerous to your wealth.”

A better rule of thumb would be “don’t borrow for anything that will go down in value.” So, mortgage, student loans (depending on your major), maybe a business, and you could probably squeeze medical bills in there as well.

Artist
Artist
9 years ago

I agree with others that giving monetarily while in serious debt is not fiscally responsible. I remember when I worked for a bankruptcy law firm & a young Mormon couple with 4 small children & another on the way was filing bankruptcy, giving up one of two vehicles, & giving up their home & moving into a 2-bedroom apartment, but were fearful & distraught to the point of almost not filing bankruptcy & losing everything except their mountain of debt, when the judge told them he couldn’t approve their budgeting 10% of their income to tything as they didn’t have… Read more »

CSPICER
CSPICER
9 years ago

I think the best part of this post is the GIVE suggestion. People who give generously in good and bad times are people who can balance what being “blessed” or “grateful” truly means. Anyone who has found themselves buried in credit card debt obviously have made choices that were not practical to their income or financial situation, so what is any different about giving while in debt? Giving takes humility and has to be priority otherwise life will always get in the way. I have personally experienced many close friends and family members who always give consistently, and they are… Read more »

Anonymous
Anonymous
9 years ago

I don’t have time to look at the original studies that “prove” (::cringe:: real science usually doesn’t use that word) study subjects on average spend 30% more when using credit cards. I personally think I have the opposite approach, but I’m a very quantitative person. I’m curious if there might be a generational or educational issue here. Cash feels like play money to me, e.g., Monopoly bills or devalued currency in a developing country, but I respond intensely to numbers on a screen, and I hate hate hate paying cash if I can save a little paying with a credit… Read more »

Megan
Megan
9 years ago

Just a thought – giving doesn’t always have to mean writing a check. You could donate your time and talents to a cause that you feel is worthwhile – help tidy up the church after services, or clean up the garbage along the road with an environmental group, for example.

KMJ
KMJ
9 years ago

@39 Rosa and @46 CSPICER It is worthwhile to at least consider the math. For example, over the course of a lifetime, giving 10% pre-tax on every dollar you ever earn could be on the magnitude of HUNDREDS OF THOUSANDS of dollars. For a family that earns 40K/year for 50 years, that is $200,000 in giving (not even including compound interest). If that same family kept the money, and hypothetically earned about 5% interest on it, they could have ended up with more than $500,000 in 50 years from that same 10%. As long as you are taking out the… Read more »

Frugal Texas Gal
Frugal Texas Gal
9 years ago

whew, I hesitate to wade in here on the “give’ equation. That said, I live on a pension of $12,000 a year plus drips and draps from two very small businesses. I give ten percent off the top to causes. Everyone who writes or speaks does it from their own perspective, as Mary does. I’ll simply observe a few things-there are many organizations and sources for finding out how much money an organization uses as overhead and how much goes directly to the “cause”. The lady who makes seventy grand may be the only employee (as in the charity of… Read more »

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