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Abundant wealth often seems out of reach, especially when so many Americans live paycheck to paycheck and are budgeting to counter high inflation rates. However, it is not impossible to reach our money goals. What is necessary to reach abundant wealth, and moreover financial freedom, boils down to a single word: choice.
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In an interview with Grow (CNBC + Acorns), self-made millionaire and author of “Financial Freedom” Grant Sabatier shared the seven levels of financial freedom. These levels start at clarity and act as a roadmap to money security until they reach the final level of abundant wealth. Sabatier, who has earned enough from investments to live comfortably in perpetuity, said progressing through each level requires a money mindset shift. Money should not be viewed as something that you use to buy things. Instead, money should give you choices. Making choices, like saving and investing, ultimately allow you to live your dream lifestyle.
Reaching any financial goals, be it abundant wealth or even something more immediate like creating an emergency fund, does require changes in how you think about money and your financial habits. These key actions will help you reframe your relationship with money to reach your financial goals.
Where Do Your Finances Stand Right Now?
It’s a little hard to get where you want to go if you don’t know where you are right now. How much do you have in savings? Do you have any outside investments? Do you owe any outstanding debt? And what are your financial goals?
Going from self-sufficiency to abundant wealth means examining your personal finance situation as it stands at this moment. Craig Birk, CFP and chief investment officer at Personal Capital, recommends understanding your cash flows, investments and where you stand for retirement. Once you have a thorough understanding of your financial situation, you can start preparing to define your short- and long-term financial goals and set these goals to reach each one.
Remember, depending on where you are currently in your life, your financial goals might be different. Some may have abundant wealth as their end goal while others prioritize saving for retirement or paying down debt.
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Create a Budget
The second level of Sabatier’s seven levels of financial freedom is self-sufficiency, in which one earns enough to stand on their own feet. Reaching level three, breathing room, means after paying for living expenses you have enough money to set aside for your financial goals.
Getting to levels two and three requires setting and sticking to a monthly budget. Amy Maliga, financial educator at Take Charge America, said a budget is a tool that helps you keep track of how much money you have coming in and the source of this income, how much is going out and exactly where it’s going. Track all expenditures for 30 days, including fixed expenses, variable expenses and periodic expenses.
Set realistic goals, especially if this is your first time budgeting, to ensure you don’t get discouraged or burned out by your balance. Realistic goals also help to keep you from viewing a budget as restrictive. In time, you’ll be able to make enough adjustments to find a comfortable balance and receive more freedom in knowing where your money is going and if you have enough to make it each month.
While getting to the breathing room level means that you do have enough money to set aside for your financial goals, Sabatier said that just because you may have, or earn, more money does not always mean it is going toward savings.
Start getting into the habit of paying yourself first by automating that extra money into savings or investment accounts. Rather than wait until the end of the month to contribute leftover income, Mike Hunsberger, ChFC and owner of Next Mission Financial Planning, recommends having the money come directly from your paycheck (if your employer supports it) or automatically sent from your checking account into a savings or investment account. Because this money is out of sight, it becomes out of mind. You won’t miss it because it’s not money you think you can spend.
Know How To Use the Extra Dollar
Levels four and five of the seven levels of financial freedom focus on stability and flexibility. Those at stability have paid off their debt and established an emergency fund. At level five, you have at least two years’ worth of living expenses saved up across savings and investment accounts.
Reaching both these levels requires an understanding of where your extra dollar is going and making the choice to put it to work for you. Alex Caswell, wealth planner at RHS Financial, said the extra dollar can be used to save, invest or pay off debt — all three choices that will allow you to prioritize reaching abundant wealth.
Work With a Financial Professional
By the time you reach level six, you will cross the threshold into achieving financial independence and being able to live off your investments. Living off your portfolio income will, in turn, allow you to reach the last level of financial freedom: abundant wealth. At this point, money will no longer be a concern in your life.
That being said, it’s always a good idea to keep a financial ally in your corner as you build wealth. Birk recommends working with a financial advisor to keep you on track to reach your financial goals and boost your confidence as you make the right money choices that lead to financial freedom.
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