Steps to Financial Freedom

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Have you developed a strategy to help your family cope
with the economic crisis our world is facing today? If not, it’s not
too late for you to determine the root causes of any financial
difficulties you may have and put into operation wise solutions that
will help you and your loved ones better weather this financial storm
and prepare for your future.

As a certified financial planner and 30-year veteran of
the financial-planning industry, I believe that personal financial
planning is essential to remaining solvent in today’s world. You can
begin today by taking the following seven steps to financial freedom. 

Take inventory. Before you can figure out where you want to go, you must determine where you are. This is the first step. 

Buy adequate life insurance. A
good rule of thumb for a family with children at home is to buy life
insurance on the breadwinner equal to 10 times his earnings. This will
provide a lump sum of money you can invest to replace his income.

Pay off all consumer debts. This
includes credit cards and finance companies—anything beyond your
automobile and home. These consumer debts primarily represent
consumption, not investment, and have the highest rate of interest.

Cut out all unnecessary spending, and then apply that
freed-up money toward your smallest debt. Each time you pay off a debt,
take the monthly payment you had been making and put it toward further
debt reduction on your next-highest debt. 

It may take you several years to get completely out of
debt, but this is the best and quickest way to do it. Staying out of
consumer debt will be one of the most critical things you can do to
remain financially free in the future.

Start an emergency reserve. I advise that you set
aside two to three months’ living expenses—the bare-bones amount on
which you could live—in an emergency reserve fund. This could be a bank
account, an interest-bearing money market fund or something similar. 

Ideally, I recommend that people build up at least three
to six months’ income in conservative, liquid accounts of some type.
It’s also important to begin a long-term savings plan. Little by
little, accumulate assets.

Pay off your automobiles. Financially, your best
bet is to buy a reliable automobile and drive it as long as possible.
Buy used cars, service them, and keep them as long as possible. The
second alternative is to buy an inexpensive new car, service it well
(changing the oil regularly), and keep it for a long, long time.

Prepay on your home. Prepaying on a home can save
thousands and even hundreds of thousands of dollars, regardless of
whether you have a fixed or variable mortgage. 

The most important of these steps for your financial
security is to cut back on spending to get rid of all consumer debt,
starting with the most egregious debts first. Strategize to come up
with specific ideas you can implement to eliminate your debt during
this difficult economic season. Challenging times create the best

Follow the example of successful people. Often the best
way to learn is to study the example of someone who has done exactly
what you are trying to do. 

There are people who are living debt free and prospering
right now—right in the midst of a world gone financially amok. Look at
the lives of some of these individuals, and let their sound financial
wisdom influence your financial practices and strategies.

Jerry Tuma is founder and president of Cornerstone Financial Services, host of the nationally syndicated financial show Smart Money
and co-author of a book by the same name. He is also a highly acclaimed
speaker on the economy and investment market and author of From Boom to Bust (Excel Books).

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