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The First Three Steps to Financial Independence | 1 Minute Money Talk

 

Financial independence is when your wealth is sufficient enough to live on without needing an income from a job.

 

To achieve this state, there are three steps you must take to even begin this journey. So these are the prerequisites.

 

Step #1: Have $1,000 cash as an emergency fund.
  • This is our basic emergency fund to have until we pay off all credit card and high interest debt.

 

Step #2: Pay off all credit card and high interest debt.
  • If you have credit card debt, you need to drop everything and treat this as an emergency.

 

Step #3: Build an emergency fund of 3-6 months of expenses.
  • Then, after paying off all the credit card, you should build up your emergency fund from $1K to 3-6 months of expenses.
  • So, figure out how much you typically spend in a month and then save 3-6 months of that number.

 

These are the basic steps to even get started. There are additional steps that you must take if you’re really serious about achieving financial independence.

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How Much Money Should I Have Saved By 30 | 1 Minute Money Talk

 

Obviously, this number is different for everyone. If you want to retire by 40, your number is going to be different from someone who wants to retire at 60.

 

However, there are some big financial companies out there that have done studies on this. One says you should have 1 times your annual salary while the other says 0.5 times your annual salary by 30.

 

A study from 2017, says the average American salary for 25-34 year olds is $40,300. At thirty, you should try to have either $20K or $40K saved.

 

But, I think this is low. If you’re watching this video, then you probably care about your financial situation more than the average.

 

I would shoot for 3+ times your annual salary. And so if you’re making $40K, strive to have more than $120K saved at 30 years old.

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Two Ways to Pay Off Debt | 1 Minute Money Talk

 

Whether it’s student loans, credit card debt, car loans or any other type of debt, you should aggressively pay off your debt.

 

There are two main ways to go about paying off your debt.

 

  1. Pay off accounts that have the highest interest rate first.
  2. Pay off accounts that have the lowest balance first.

 

The first method is more practical because you will pay a lower amount of interest because you’re paying off debt with higher interest rates first.

 

However, the second method has more of a psychological effect as you are likely to be more motivated as you pay off your smaller accounts first.

 

I really like both methods and you can’t go wrong, it’s really up to personal preference and whether you’re motivated by seeing smaller accounts being fully paid off or more motivated by paying the least amount of interest total.

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