Who wants to get rich?

We sure do. Cheers to that, areweright?

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Well, we’ve found that simplifying your life can improve your personal financial situation dramatically and help you get there.

Now we’re not talking, rap video rich, or hedge-fund manager rich, well maybe, I guess. But what we’re talking about is good old-fashioned financial security and a clear vision for the future.

The way we see it, money is an exchange of energy and the purpose it serves in our life is far more important than the money itself. Money itself is really nothing, it’s neutral. It’s about what money can do in your life that’s important (and motivating).

For me [Dana], it’s directly connected to my freedom. I don’t want to be rich so that I can drive a sports car, tote designer handbags or live in a mansion. Although I’m sure those things are lovely. I’m not knocking them at all. They’re just not what I personally value. I value being able to get up in the morning and do the things I want. That is what’s important to me.

So, not only does minimalism free up your money – as your goal is to have less stuff instead of more – it also frees up your time and energy. Which you can then spend on being more productive, earning more money and living a fuller, richer life in general.

Because again, we all want to be rich, right? Not just in terms of money – although money is crucial – but in terms of living a rich life.

Being realistic though, if you’re in heaps of debt, living outside your means or scraping by paycheck to paycheck, it can be really hard to feel ‘rich’ in either sense of the word.

So we want to help you with that.

Personal finance is not rocket science but, as I knew first-hand about six years ago, when you’re in a mess, it can be really hard to figure out the right steps to get out of it. And I was in a mess for sure.

It was really just the result of operating under a set of assumptions that weren’t serving me and a profound, personal commitment to avoidance and procrastination.

I was making more than enough money, I just didn’t know what the hell I was doing. And I also just didn’t want to deal with it. I wanted to go to happy hour and shop.

Today I’m in a much better place. I know what I’m doing with my money, I don’t carry any consumer debt and I have plenty in savings to move forward towards my goals. (And no, it’s not because I got married.)

So I wanted to give you a very basic overview of the general progression of personal finance. The master path to financial freedom, if you will (which I am still on myself, obviously). After that, in a series of upcoming posts, I’ll lay out specific steps you can take to start walking the path yourself, no matter where you’re starting out today.

To be clear, as is the case with nutrition (there are tons of parallels to finance and dieting) there are a million ways to go about this. But if you’re lost and looking for a very simple plan to make some headway, give ours a shot.

We’re not experts by any means but, we’ve figured a lot out along the way and we want to help.

We’ll also be here to support you because we think this is really important. There’s nothing more empowering than having your financial shit together and being able to take care of yourself. And if I’m being totally honest, I feel like a lot of us put off dealing with it, thinking we’ll get it together eventually or, as I mentioned before, when we get married or something. As if it’s someone else’s responsibility. But it’s not. And you are more than capable of managing all of this yourself – and trust me, if feels so, so good to be financial stable. So good. Oh my God.

One Important Prerequisite

Simplify your life. Go minimalist and stop spending all of your money on stuff. Stuff doesn’t make us happy, but being able to support ourselves can really help.

Being financially secure alleviates the stress and uncertainty from which we often seek reprieve: by spending money. And although there is virtually no correlation between increased income and increased happiness (once your basic needs are covered), the reality of life is that it’s a lot easier to enjoy it if you’re not stressed out about your financial situation all the time.

The Path to Financial Freedom:

Step 1: A Reality Check

Step 2: Save a Small Emergency Stash

Step 3: Pay Off Your Consumer Debt

Step 4: Save a 3-6 Month Fund (aka The F&ck Off Fund)

Step 5: Start Using Your Money to Make More Money

Step 6: Passive, Residual or Investment Income Is Greater Than Your Desired Living Costs

Step 1: A Reality Check

You must first fully understand where you are today in terms of your finances. What you have, what you owe, what you earn and what you spend. If you don’t know this down to a very close estimate, you can’t really move forward in an effective way. You simply won’t have the right information.

Step 2: Save a Small Emergency Stash

The problem a lot of us face is that we try to make some headway but then life shoves us back. Your car breaks down, your best friend gets engaged, your roommate gets transferred to London (that actually happened to me). If you don’t have at least a small cushion set aside to cover unexpected life expenses like this, it’s really hard to get anywhere. The amount you need will vary but, I’d shoot for about one month of living expenses – this is just a quick emergency fund to keep you out of the red until you can make it to step four.

Step 3: Pay Off Your Consumer Debt

There is no point in starting to save or trying to invest if you have giant credit card balances you can’t pay off. Consumer debt doesn’t include things like your mortgage or student loans but, your J. Crew credit card? Yes. So you’ll want to pay off your consumer debt before moving forward. You’re likely paying a high interest rate on it, which means you’re paying just to be in debt. You’ll want to get rid of this debt before taking any further steps.

Step 4: Save a 3 to 6-Month Fund

This means saving three to six months of your total living expenses per month. You’ll want to put this aside because it’s the foundation for your freedom. If you could lose your job tomorrow and not miss your rent payment or starve for six months, imagine how much less scary it would be. More importantly though, having this fund protects you from ever being stuck in a job, situation or relationship that is not working for you. Until you could live your life for a few months without income, you’ll never really feel free.

Step 5: Start Using Your Money to Make Money

Once you’re out of debt and could live without income for three to six months, it’s time to consider how the money you’re able to put aside each month after your living expenses could start working for you. To be clear, investing does not mean finally buying those Stuart Weitzman over-the-knee-boots. It means taking the money you have and figuring out how to make it generate more money for you. This way, you can be making money outside of your regular income, which is key for Step 6.

Step 6: Passive, Residual or Investment Income is Greater Than Your Living Expenses

This is the goal. This is when you could stop working because the money you’ve acquired and put to work is now covering your desired living costs. If you can live without having to work for money, you’re financially free.

So these are the basic, general steps toward financial freedom. They will most certainly not happen over night. It took me about a year to pay off my debt and get over the Step 4 hump. But, do they all make sense? Do you have any specific questions? We’d love to hear from you in the comments below.

And next up, we’ll dive into and more specific breakdown of Step 1 for you.

Oh and if you’d like to start simplifying your life to improve your personal finances, check out our 7-Day Simplify Challenge. It’s a great place to start.

Dana

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