If you ask the average American with their plans to achieve financial freedom are, they might scratch their head for a little bit and change subjects. Financial Freedom is a topic most people likes to talk about but very few are actually taking action to achieve it. In this article we will cover some really foundational but extremely helpful ways that you can automate your Financial Freedom by setting up bank accounts. If you have any questions feel free to reach out to me in the comment section below.
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What Is Financial Freedom?
Initial freedom is simply earning enough income to surpass your living expenses. So if you spend $50,000 a year including your housing groceries and all other expenses, by learning $50,000 or more, technically you’re financially free. however, if you are reading this post, you don’t want to just squeak by with your expenses, you want to explore everything that life has to offer. Therefore, a recurring income of $60,000 or even $80,000 on a $50,000 yearly expense is a much better place to be.
Why Financial Freedom?
The whole goal of financial freedom is to escape the rat race of depending on a job to pay you. The trap in this scenario is you become complacent with your income. You start to buy bigger and bigger toys the more your income increases. Before you know it, you are earning $70,000 a year and you are spending $75,000 a year. This is known as lifestyle creep and it is easily the biggest reason why the average American works until they’re 65 to retire for maybe 10 to 15 years of the rest of their life.
Financial freedom allows you to separate yourself from a job so you can spend the time doing the things you are put on this Earth to do. It’s not even about the vacations or spending more time with family, it’s about giving yourself the time to do whatever it is you think about doing everyday. Too often you can’t do what you love because you “have” to work. I hope this post gives you some clarity on how to really start to separate yourself from where you’re at now and where you ultimately want to be in life.
What is the traditional method of financial freedom?
Most people striving for Financial Freedom will set a goal to just start earning more money and hopefully retire 10 to 15 years earlier than they were planning on. The issue with this plan is there’s no set process in place to accomplish that goal. While it’s still a good goal to aim to retire early, it’s still an inefficient way to strive for financial freedom.
Wouldn’t it be easier to set a system up that will work without you even having to think about it?
Wouldn’t it be great when the system kicks in, you’re getting one step closer to financial freedom and separating yourself from financial worry?
Just imagine living the life you want to live without having to sacrifice anything you love. When you approach Financial Freedom in a systematized way, this lifestyle becomes extremely possible. I will walk you through how to get exponentially closer to the goal that you set out for yourself.
What is the financial freedom system?
This is not a one-size-fits-all approach but I will give you the method that we use currently which has helped us in various ways. The system works like this:
- Get paid
- Pay yourself first
- Allocate money for specific savings accounts (gifts, fun money, date night, adventures, emergencies, etc)
- Pay bills/live life
So what this would look like is you set up one main account to receive all paychecks and pay bills from. You then set up various checking and savings accounts for specific purposes ex: Business account, baby account, fun money, down payment, etc. (more on that later) When you get paid, you designate a specific amount of money to go towards each account either once a month or however often you feel comfortable.
For example, let’s say I get paid $6,000 on the first of every month, I will set up an automatic transfer to be withdrawn on the 5th to give some wiggle room for the paycheck to come in. So it might look like 20% of the paycheck will automatically go to an investment account. From there I might have $750 go to a retirement account, $500 for a downpayment, $250 for emergencies, $100 go to baby account, $100 for gifts, and $100 for fun money. All together, I have put away $3000 for future me. Then on the 10th I pay bills. It’s best to schedule everything you can to be due on the same day like mortgages, utilities, subscriptions and everything else. That way you can manage you money effectively knowing you need X amount by this day to keep things rolling. After paying yourself, paying bills, you can spend guilt free on what’s left. While there’s no need to go buck wild with your money, you can spend it knowing you’ve already allocated what’s needed.
And while the numbers above can completely changed and altered given your living situation, it was an example of what you should think about. It’s extremely recommended to have some type of money that you put away for investing. The reason for this is of vast majority of people on this earth do not earn enough from their jobs to rely on it as their only source of income for financial freedom. Almost every person that has reached financial freedom has Investments that are working for them that allow them to retire early.
Having some type of asset like real estate which gives you money on a consistent basis is a great way to use the portion of your paycheck. Essentially every dollar that you pay yourself you’re taking care of your future self rather than using it now. Another way to put this is delayed gratification. You’re postponing all the toys that you can get now so you can get 10 times the amount of toys later.
Don’t get too focused on the numbers to put away towards your bank accounts. If you know you have a downpayment you want to save up for, consider putting more away into that account and less from another. The point here is you know what’s important to your life and what’s not, so why not just start putting money away for it now so it’s less of a burden later.
Almost everyone reading this knows that you’ll likely need to buy some items for Christmas but often don’t have the funds to buy a lot of gifts. This savings method allows you to save consistently for it so you can afford to get gifts without feeling guilty.
Rather than buying 30 Starbucks drinks in a month, use that money to go towards your bank accounts. At the same time, think of alternatives on what you’re currently doing to give yourself the money to put away towards the bank accounts. If you go to Starbucks all the time, consider investing in a coffee machine make it from home. If you work out the numbers it costs less than a quarter to make coffee at home. For us and comes right out at $0.14 if I go buck wild with additives but more like $.08 cents if I keep it simple with just coffee and milk.
And if you are unable to save $100 for an item, save $50, if that’s not possible save $10. I promise every one of you you have $10 that you can eliminate from your expenses every month that can be put towards something more productive. I’ll make another post on this in the future highlighting ways to be more conscious with your spending. But for now, set up bank accounts four things that you know that you will want to save for whether it’s now or in the future.
Some of you may be saying “well now i’m going to have to pay a lot of fees to set up all of these accounts.” That could not be further from the truth. There are plenty of amazing banks out there that are looking out for your best interests. The only issue is a lot of us are more than likely using banks that regularly charge fees left and right for everything under the sun.
Here are two banks to stay away from:
- Wells Fargo
- Bank of America
Wells Fargo and Bank of America always charge fees for new accounts, account minimums, overdraft fees, and countless other things that you don’t need to put up with. Truthfully, I was on edge for the longest time when my account hovered close to $0. I knew Wells Fargo would take a sizable chunk out of my account as if I meant to go below $0. Oftentimes, my account would go below $0 for 10 minutes while I was transferring funds around and I get hit with a fee. It wasn’t until years later, I read Ramit Sethi’s I Will Teach You To Be Rich Book and he helped me realize that Wells Fargo and BOA are horrible banks.
What Banks SHOULD You Use?
There are a few banks that are great to use for checking and savings accounts. For checking accounts I would recommend Charles Schwab as there are no account minimums, overdraft fees, or minimum balances. On top of that if you go to any ATM anywhere and withdraw cash, they credit you back the money at the end of every month. There are also no foreign transaction fees which is a nice bonus as well. Ally bank is another great one while I have never used them, many people have said they love them.
In terms of savings accounts I could not speak more highly about Marcus Goldman Sachs. The transfers are extremely smooth and efficient, they used to have pretty high interest rates for a savings account which was nice but it’s not like you’re getting rich off of a savings account anytime soon. For me the savings account is more for a place to park my money for a couple months before it goes someplace else.
An example may include an investment account which I know I’ll be using the money to go towards a rental property within a years time. Anything longer then a 1 to 3 years should just go into a retirement account as you’re better off holding your money in an account that can grow for the long term.
But if you genuinely feel like you will need the money back within a 1 to 3 years, use a savings account. It’s also really wise to have an emergency fund as well to prevent any uh-oh situations from happening where do you know you’ve got it covered if anything pops up. Ideally you should aim to get this up to 1 to 3 months of expenses. Then circle back to this and beef it up to 6 months of expenses once you have paid off all high interest debt or any other debts that need to be eliminated. I’d say a mortgage is the exception to the rule as that will take a very long time to pay off.
What bank accounts are best to set up?
So as mentioned earlier, we use Charles Schwab for our checking account and Marcus Goldman Sachs for our savings account. The only caveat to Charles Schwab is you have to open an investment account which is free of charge. You’re not obligated to put any money into it but it’s a requirement. But for the benefits that they provide to you, it’s a no-brainer to get a checking account or multiple with them.
We use the checking account for all expenses that happen consistently and within a 1 to 6 month basis. These would include rent payments, utilities, date nights, baby expenses or anything else. We have a centralized checking account which all of our paychecks go into, and from there we disperse the funds accordingly. We also have a real estate account for all real estate related transactions like utilities and rent payments. A business account for all business related transactions outside of real estate to keep things organized. Lastly we have a personal account to purchase things from our own money whenever we see fit.
When it’s time to pay off the credit card, we reimburse ourselves from our checking/savings accounts to go back into the main central checking account and pay the card off in full. A pro tip is to use a rewards card like the chase freedom unlimited to get travel points to go towards flights and hotels. A pro pro tip is to also get the Chase Sapphire preferred to act as a point multiplier to give you 25% more points just by transferring everything from their Chase freedom unlimited into the Chase Sapphire preferred.
Our savings account by Marcus Goldman Sachs is a little bit more expanded. We have an emergency fund, find money, baby account, investment account, and a gift account. Those are relative to us and again you can change it depending on what you need for your life. But these accounts are great as we allocate money every single month to them, we can then spend money guilt free knowing that we have a savings account built up for this exact reason.
So fortunately over the past few months after having a newborn, we buy diapers and formula guilt free knowing that we’ve got a hefty savings account built up for her. The best part about all of this is the funds were completely automated and growing without us ever having to touch any of the accounts. All of the money got automatically transferred in the beginning of the month and it continues to grow without us having to touch anything once it’s set up. That’s the beauty of automation!
How to automate your financial freedom
Now the best part about this is once you set it up today, the more money you earn overtime, you can just contribute more each month to these accounts to expedite your savings accounts and finally take control over your money in your life. Financial freedom is more about discipline than it is about earning a lot of money. Realistically, you really only need to earn $3000 to $5000 a month to cover your living expenses in order to become financially free. But if you really want to fast track your financial freedom, you will cut your expenses on the things that you don’t enjoy anyway, and spend more on the things that you love which will further inspire you. Set up your automation today so when you do earn more you know you have everything under control.
Financial freedom roadmap
Financial freedom is not a Direct path. Often times there are hundreds or thousands of road bumps and hurdles that lay ahead of you. Having something like an automated savings system will help you in so many more ways than you can think. Once that is set up, start to look for ways that you can replace things you already purchase like coffee at the store.
- Do things around the house instead of hiring someone to do it for you to save even more money.
- Consider working out from home to save yourself both time and money.
- Look for ways to build a side hustle so you can increase your streams of income further expediting your financial freedom.
Again, this is not a direct path as we all are in different places in life but what’s important is that you now have actionable takeaways that you can implement today which cost you zero dollars. And it will pay you back many times over in both the forms of time and peace of mind knowing that your money is working for you and you no longer have to run on the hamster wheel the rest of your life now knowing the tips in this article. So if you enjoyed this please leave a comment below as I love to hear from everyone and I will talk to you soon.