On today’s episode I go over the 5 financial independence action items you need to get done as you begin the path to FI (Financial Independence).

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Highlights

1. Get life insurance. Check out Haven Life for a free quote on term life insurance.
2. Never carry debt. Check out this post about the debt snowball
3. Budget everything. Here are some free tools to budget including the Google sheets template we use.
4. Save 30-50%. Remember, start with index funds.
5. Have a plan.

Show Transcript

Hey everyone, I’m Matt, your host of the Habesha Finance Podcast and today’s episode is going to be packed with so much content you’re going to want to take notes. I appreciate all the positive feedback and reviews thus far on Apple Podcast, Google, Stiitcher, and wherever else you’re listening. I am truly grateful for your support.

Well, episode 6 here we are. And I think it’s fitting that this be dedicated to helping you learn how you can get on the path to financial independence. Like I said there will be some key takeaways in this episode so you definitely want to have a pen and paper handy.

To give you some background we started our journey to financial independence early 2017. Dave Ramsey was our initial “financial coach”, but quickly moved on from the education he taught so that we could be more optimal with our money and building a life we envisioned for ourselves. And that’s something to remember. That personal finance is personal. What works for you may not necessarily work for me, vice versa. And I believe that is important when talking about your finances.

So, I totally understand if there will be some ideas and suggestions you won’t agree with me on this podcast. That’s the whole point of you listening right?! To understand and even offer different opinions and strategies that can help everyone out there whose goal it is to become financially independent sooner than later. So if you’d like for your voice to be heard reach out to info@habeshafinance.com.

So let’s get started with the 5 actions of financial independence you need to do today.

Financial Independence Action #1: Get life insurance.

Parents and spouses, if there’s any financially wise choice you can make, it’s this: Get life insurance today. It’s not about you, it’s about what could happen to your family if you died today. I want that to sink in a little bit. I want you to think about the financial struggle your family will face without you to provide for them. A good general rule of thumb is 10 times your income or a minimum that will provide a steady stream of financial support to those who depend on you. So you might want to look at a million dollar policy.

I checked with Haven Life and a million dollar 20-year term policy for a 35 year old male in good health, not excellent is about $36/mo. You can’t beat that. You basically have 20 years to build wealth and save like crazy. Check out my Haven Life and get a term-life policy today. Also, take into consideration any outstanding debts like a mortgage or student loan a family member may have. Maybe future college expenses, weddings, cars, etc.

Life insurance for stay-at-home-parents also is needed and that amount will vary from family to family. At least $500,000 should be the minimum to cover the stay-at-home parents out there. To the stay-at-home parents, what you do is important and the value of your work is great. Now there is a big debate out there in the market of life insurance that I plan to dig deep in a later episode. For now, my suggestion is for 99% of you to get term life insurance. Get a 20, 25, 30 year term-policy. It’s low cost meaning and you can put more towards investments and savings accounts as you build wealth to a point where the need for life insurance goes away. YOU’VE BECOME SELF-INSURED with investments, properties, a business or something else along those lines.

Other insurance you will want to consider having: long term-disability insurance basically to protect you and your income if you suffer an illness, injury, or accident for a long period of time. The majority of employers should provide this, but you’ll need to confirm. If you’re self employed then shop rates to get the best deal out there.

As you near the age of 50 and above then you will want to look at long term care insurance. Long term care insurance covers home care, nursing home, assisted living, adult daycare, hospice care, Alzheimer’s facilities, and home modification to help with disabilities. Like I said this insurance can be put off until about the age of 50 or so. Insurance is there to cover the what-ifs and unfortunate events in life we don’t know how or when can occur. Do not pretend accidents won’t happen, please. Do this for your family. Do this for the people who depend on you.

Financial Independence Action #2: Never carry debt.

Minimize debt as much as possible. From student loans to credit cards to car notes. The opportunity to go into debt is all around you. You have to put your guard up. By now you know that I am debt averse. This means I stay away from debt as much as possible. I don’t use a credit card. And of course I have nothing against those who wish to build credit and use debt to accomplish that goal.

As for me, I am happily someone who would rather keep my finances simple and forego a 1 or 2% cash back for every dollar I spend. Besides, I have to spend money to earn 1 to 2% of cash back and there is a bit of psychology that’s already been studied by professionals. You spend more on credit than debit. You spend more on card than cash. I’m perfectly ok without debt in my life. Besides a lot of debit cards today come with similar cash back programs. At the end of the day it’s your choice and as you begin your path to financial independence I strongly believe in minimizing your debts until you can be financially responsible.

Financial Independence Action #3: Budget everything.

When we got married in 2016 we never looked at budget or questioned how we would handle our money. Thankfully we got some good guidance and now use a Google sheets budget to track and wisely spend our money. Every month since March of 2017 we’ve been knocking down our student loans and other debt we had coming into the marriage. We spent the first 5 months of our marriage without a budget. Since then we’ve been living on a budget for the last 16 or so months and we don’t plan to stop.

We budget at the beginning of the month and update every few days to keep ourselves honest. I like using Google sheets or like an excel style, because it forces me to manually update it and I was joking around with my friend but I feel a strong connection to the budget. But on a serious if you can master budgeting then I think overtime once you reduce your debt to 0 there’s a strong likelihood a budget becomes natural to you and you’re not overspending and closing each month wondering where all your money went to.

Financial Independence Action #4: Save 30-50% for retirement.

This by far is going to be the most fun part of the journey to financial independence. You’re going to be saving in 401k, Roth IRAs/Traditional IRAs, Taxable Accounts, HSA which are Health Savings Accounts, 529 education plans for your children…so many different vehicles to save your money in and we’ll be going over all of those. More important than where you save and invest your money is how much you save. Starting out it’s going to be hard to save 30%, let alone 20% or 10% for retirement.

The way I see it is I can save as much as I can and still be content and enjoy life today without all the materialistic. I have to realize I don’t need that new fancy car that’s $40,000-$50,000 or the 500 channel cable package. Why 500 channels? Seriously people learn to live a life of contentment and be happy with what you have. Saving 30-50% or even more is a sacrificing act with a generational impact. Start with 5% and build up from there each week till you get to a nice balance of saving and enjoying your life. But I encourage you to try to stay in that 30-50% savings range. The more the better. The more the earlier you can retire.

Financial Independence Action #5: Have a plan.

Every great achievement is made through preparation and planning. To achieve financial independence you’re going to need a plan. Not just a plan for the next 30 years. A plan for next week. A plan for the rest of this year. A plan for 5 and 10 years down the road.

How much do you want saved in x-amount of years? How many months do you want your emergency savings fund to support 3, 6 months maybe 1 year? Do you want to own a home or rent for the rest of your life? How will you handle the expense of college with your children? Where do you plan to retire? What do you plan to do after retirement? What’s the plan for leaving money behind to your children or beneficiaries?

Having a plan is by far the one acts of financial independence that you most likely will keep with you for the rest of your life. And Plans change, you know that’s expected. What I don’t want to change is your drive and level of tenacity to achieve financial freedom and the opportunity to do what you want when you want. Because you earned it.

To recap the 5 actions of financial independence you need to do today:

• Make sure you’re insured, whether it’s life insurance, long term disability insurance, long term care insurance depending on your age.
• Never carry debt. Pay down your consumer debt as quickly as possible. Debt-free is the way to be.
• Budget everything. Take financial control and spend wisely.
• Save 30-50%, even more if you can. A higher savings rate means you shorten the path to financial independence and early retirement.
• Have a plan. Live your life on purpose and this includes how you handle your finances.