5 Simple Steps To Financial Freedom

– How’s it going today, guys? Welcome to back to the channel, hope you’re having a great day so far. In this video today we’re
gonna be talking about the five simple steps
that you need to follow in order to achieve financial freedom. Now, a lot of people way
over-complicate this, and it causes people to think
that this is impossible, they’re never going to be able
to achieve financial freedom or improve their financial situation. What I’m going to do in this video is break it down into five very simple and actionable steps that you can follow if you’re looking to improve
your financial situation and eventually reach a point where you are financially free, meaning that you aren’t
necessarily focused on money as your sole issue or sole factor when deciding whether or not
you want to do something. Now, this lesson right here is something that is not taught in school. I guess they are too busy
teaching geometric proofs and teaching you English
as an English speaker to be able to show you these
basic financial skills. This is a very important lesson, and if you guys have
not learned it before, make sure you guys share
this with somebody else so they can figure this out as well and learn these important lessons. Number one, the very
first thing you have to do if you’re looking to improve
your financial situation, reach financial freedom,
or get out of debt, is look at your current
financial situation. Now, the best comparison I can make here is thinking about, let’s say your goal was to lose weight. Well, we know if you wanna lose weight, you have to eat healthier foods and you have to have regular
exercise throughout the day, but why is it that you are doing that? The reason why you are doing that is because you need to burn more calories than you are consuming. If you’re eating 5,000 calories a day and you’re only burning 4,000 or 3,000, well, everybody knows that
you’re going to gain weight. Trying to improve your financial situation without actually looking at the numbers is like trying to lose weight without looking at the
calories you’re burning or how many calories you’re eating. You’re just gonna go out there and eat whatever you feel like, and you’re gonna exercise
whenever you want to, and you’re not gonna track anything, and you’re gonna hope to lose weight. Anybody who’s done that before knows that you’re not gonna lose a damn pound as a result of doing that because you are not tracking your results and tracking how much you’re eating. Just the same, you need to be tracking
your financial expenses and your income in order to make sure that you are saving money every single month, or not living paycheck to paycheck, or going into debt. The method of doing this, you guys can do this on Excel, you can do this just like this
on a lined piece of paper, and all you’re going to do is you’re gonna start by looking
at the last three months. Before you go out there and say, “Oh, I don’t know how
much money I’m spending,” well, most of us, especially young people, are using debit cards or credit cards for all of our purchases. You can access, in some cases,
six months or more of data, so there’s no excuse about
not being able to find how much money you’re spending, because it’s all there for you, unless you’re somebody
who spends 100% cash, which is not going to be most people, especially among the millennials. I recommend looking at the
last three months of data. If you want, you can go beyond this, which is going to be even more beneficial. What you’re looking at is how
much income you’re making, your income from all sources after taxes minus your expenses. Now, we typically have two
types of expenses out there. Number one, we have our
recurring monthly expenses that are often nondiscretionary, which simply means we cannot change them. This is things like your
mortgage or your rent or your utility bill, things like that that are
fixed monthly expenses that are around the same amount each month that you really can’t change. Then we have discretionary expenses. That’s things like
going out to the movies, dining, entertainment, bars, alcohol. Those are expenses we have control over, and if you wanna take
this one step further, you can branch out and separate your discretionary versus your
nondiscretionary expenses, which is ultimately going
to help you figure out where you can do some trimming. All you’re going to do
is do the math here. You take your income and
you subtract your expenses, and simply by doing that math, that’s going to tell you if you have positive monthly cash flow, meaning you’re making more
than you are spending. If you have basically breaking
even paycheck to paycheck where every dollar you
earn, you’re spending it, or in the worst case scenario, you have negative monthly cash flow and you are spending more
than you are earning. Let’s say in November
you earn 3,000 post-tax and you had $2,400 in expenses. Well, you were positive $600 that month. Now, December, a lot of
people have higher expenses. They’re discretionary expenses because of Christmas shopping
and holiday spending. Let’s say you earned again $3,000, but you spent 3,800, meaning you were negative $800 that month. And then in January, let’s say it was the same
exact expenses as November, and you are positive $600. That is exactly what you’re going to do. You’re gonna look at the last
three to six months of data and determine whether or not your income is exceeding your expenses, and if it’s not, there’s absolutely no way I
can help you at this point. Steps two through five
are totally irrelevant if you are not making more
money than you are spending, so that is your first goal, is to figure out how to cut
down on those expense items and get yourself in a situation where most months, if not all months, you are cash flow positive. If you’ve accomplished that and you already have determined that you are cash flow
positive on most months, if not all months, step number two is to eliminate bad debt. Now, not all debt is bad, and you can be responsible
with credit card usage by paying off your cards
at the end of every month. That is not what I’m talking about, here. I’m talking about any
credit card debt you have, or student loans or medical bills. You need to start getting these paid off before you begin investing in other areas. There’s two different methods that people typically follow with this. Number one is to simply pay off the highest interest debt first, and financially, that is
what makes the most sense. That debt is the most expensive. You’re paying the highest interest rate, and you wanna pay back
those amounts first. Option number two is simply to pay off the lowest balances first, and the reason behind
that is, psychologically, it makes you feel like you’re
accomplishing something to eliminate a piece of debt entirely, and that’s going to
get the snowball going. A lot of people call
that the debt snowball. I believe that’s Dave
Ramsey’s method there that he talks about a lot, is starting with the
lowest dollar amount first, because that’s gonna make you feel like you’re accomplishing something. So, if you had these
debts here, for example, let’s say you had a Best Buy credit card with $900 on it at 18%, a Walmart credit card with 500 at 19.5%, a Discover card with $2,000 on it at 25%, and then you have some medical bills from some dental procedure, 4,000 at 11%, and then you have student loans, you know, $50,000 at 8%. What order would you do this in? Well, if you were following the strategy of highest interest debt first, you would start with your Discover card, because that is the highest
interest that you are paying across all of your debts. But if you’re following
the debt snowball approach and paying the lowest balance first, you would knock off that Walmart card. That’s gonna be the easiest one. What you’re looking to do is pay off the high-interest
debt that you have, and then the only forms of debt that I can understand not
paying off immediately before following these next
steps would be your mortgage, because that’s typically
3% to 4% interest, if you have a low-interest auto loan or low-interest student loans. You don’t necessarily have to
be debt-free before investing, but you wanna make sure that your high-interest debt is paid off. It doesn’t make sense
to be investing money earning an 8% return, meanwhile, paying out
25% to somebody else. Your goal here is to pay off your high-interest debt first, and then step number three, which we’re gonna talk about soon, is going to eliminate that future need to go into debt through
the use of credit cards. Okay, so the third
thing you’re going to do after your high-interest
debt is under control, your credit cards are paid off, is you’re going to put $1,000
in a separate savings account. Now, you might be asking me, why don’t I just put this in my, already the savings account that I have, or the checking account that I have? That is because you want this to be a separate amount of money, because this is called
your emergency fund. It should not be confused
with your savings account or your checking account. This is your emergency fund that you’re only going to
dip into in a dire emergency. Basically, what this would be used for is things like an emergency car repair, some kind of medical bill that comes up out of nowhere, unexpected expenses that were not, that you were not able to plan for. That is when you would
use your emergency fund. This is not for Black Friday spending, Christmas shopping, that trip to Cancun. This is for dire emergencies only, and that is why it needs
to be in a separate account that you don’t have easy access to. Now, as far as what account, personally, I’m a fan of Ally Bank. I know a lot of people are using that. I have my slush fund, my
emergency fund with Ally Bank. They’re currently paying out
a 2.2% yield on that account, which is a lot better
than traditional banks. Now, I am gonna link up all
these resources down below. I’m not affiliated with Ally Bank. I don’t get any kind of kickback. I just think it is a great
product and awesome option for where you’re looking to
place that emergency fund. But what you’re gonna do, you’re gonna start with
$1,000, because ultimately, your goal is to build up an emergency fund that’s gonna cover six months of expenses. In case, let’s say for example, you lost your job tomorrow, you would be able to cover six months of your living expenses
without going into debt. Now, that right there for most people, that could take them two or three years to save up that amount of money, and if I told you to do that today, you would be extremely overwhelmed and most people would
not even try to do that. But if I’m simply encouraging you to get $1,000 in a
separate savings account, most people can accomplish that in a relatively short period of time, and then over time, they can build into that
larger savings amount that’s gonna cover their
six months of expenses. That is step number three. Step number four for financial freedom is to begin investing for your future. One of the easiest ways to do this, and the overlooked ways, is your employer-sponsored 401(k), and particularly the employer match. Not all companies are going to offer this, but a lot of companies still do, especially the Fortune 500 companies, and that is where they’re going to match your contributions to your 401(k) up until a certain dollar amount. Let me use myself for an example, here. When I used to work a job, I’m a full-time YouTuber now, but when I used to work a job, I worked for the local power
utility in the Northeast. They had a employer-sponsored
401(k) through Vanguard, and they also offered a company match. Now, the policy for the company match was they would match 50% of
what you contribute up to 3%. That means if I contributed 2%, they would match it up to 1%. If I contributed 4%, they
would give me another 2%, and if I contributed 6%, I could max out that 3%
match that they would do. As soon as I was able to
contribute to my 401(k), I personally contributed 6%, and my employer matched
it 50% for the other 3%, meaning that 9% of all of my pretax income was going into my 401(k). So, just how much money was this? Well, at the time, I was earning a salary of $65,769. Basically, as a utility planner, I would plan out the overhead
power line construction. My contribution for my salary was 6% of my pretax income, or $3,946. Now, my employer would match
half of that contribution, which was 3% of my
annual salary at $1,973. That right there is free money that most people are
not taking advantage of. If your employer is
offering a 401(k) match and you’re not taking advantage of it, you are literally saying no to free money that they are offering
people that you just, some people, they don’t
understand this concept, and they don’t understand that they wanna be saving and
investing for their future, so they don’t even bother with this. Now, you might be asking me, well, why don’t I make
that 10% or 20% of my pay going into your 401(k)? While that is a good
option for some people, not all 401(k) plans are created equally. If you’re gonna contribute more than what your employer is going to match, I would definitely encourage
you to do some more research on your 401(k) plan and what kind of fees are involved, because all 401(k) plans
are not created equally. Three of the ones that are typically good are Vanguard, Charles
Schwab, and Fidelity. If you are one of those plans, or one mentioned on that top 10 list down in the description below, it’s probably a good plan, but I would definitely recommend
doing some more research. And then, number five, the
fifth step to follow here is to open up a fee-free Roth IRA. Now, a lot of people are not familiar with what a Roth IRA is, or the difference between
a Roth IRA and a 401(k). The difference is, with a 401(k), you are putting away money that
you have not paid taxes on, and eventually when you
reach retirement age and you decide to withdraw
from that account, you have to pay taxes on that money. A Roth IRA, on the other hand, is a type of retirement account. It’s separate from one
offered through your employer, and what you are doing is
you’re putting away money that you’ve already paid taxes on. You take your post tax income, you invest it in this account, but then the beauty of this
is it is completely tax-free as long as you dip into it after you reach retirement age. Basically, it comes down
to whether you wanna pay a large tax bill later
or a small tax bill now, and the Roth IRA allows
you to pay taxes now and not pay taxes later. What most people would recommend is to invest in Vanguard index funds. They also have TDFs, which are
target date retirement funds, which basically, as you get
older and closer to retirement, it’s going to reallocate that portfolio to have less and less
risk as you get older, because you don’t want
to be exposing yourself to massive amounts of risk as
you’re closer to retirement. As far as my recommendation goes, one of my favorite platforms for Roth IRAs and retirement accounts is M1 Finance. I have a link for M1 Finance
down in the description below. It is an affiliate link. You guys don’t have to use
it if you don’t want to, but understand that your use of my link helps to support this channel and allows me to make
more videos like this. M1 Finance is a great platform
for retirement accounts, in my opinion, for these reasons. Number one, it is completely fee-free. You are not paying any
kind of fees to M1 Finance. Number two, they offer dozens of professionally-built portfolios, so you’re not flying blind. You’re not going in there
trying to figure out how to allocate a portfolio from scratch. You can use one of their
prebuilt portfolios, and they also offer those
TDFs, those target date funds, where you simply put in the
year that you wish to retire, and then they’re going to allocate that portfolio accordingly. At the end of this video, I’m gonna show you guys
exactly what that looks like. We’re gonna open up the M1
Finance app on my phone. The other reason why I like M1 Finance is because it’s 100% automated. You can automate your
monthly contributions towards your retirement account, and you can basically
just set it and forget it. The fourth reason is
there’s a very low minimum to get started, just $500 for an M1
Finance retirement account. Now, the reason why
you’re going to do this is because you are shelling
away your money tax-free, and there are limitations on
how much you can contribute towards this account. In 2018, it was 5,500, but they’re actually increasing
that to $6,000 per year from 2019 forward. If you are 50 or older, you can actually contribute
an additional $1,000 into that account per year, in part of a catch-up period. It’s not a huge amount of money, but you’re able to put away money tax-free and allow yourself to experience decades of compound interest
without paying taxes. I wanna give you guys an example here of how much money this
could honestly make you over a long period of time by
talking about the tax return. What do most of us do with
our tax refund or tax return? A lot of us just throw it
into our savings account and spend it on who knows what, or we go on vacation, or we go to the mall and just
buy a bunch of random crap that we don’t need. But what if, instead of
spending that tax refund, you took your tax refund,
put it into a Roth IRA? What was that potentially
look like for you? Well, first of all, the average refund that somebody gets here in the United States is around $2,000 to $3,000, so we’re gonna go right down the middle and say you’re getting
a tax refund of $2,500 every single year when you file. So, instead of spending
that on useless crap that you don’t need, let’s say you put that into a Roth IRA, and you were earning a
return of 8% per year. Now, historically, the stock market has
paid around 10% per year, and we’re gonna subtract 2%
to account for inflation. Your actual return would be around 8% over a very long period of time. You might not see that every single year, but if you look at decades
of historical data, those returns are what you
would see with the stock market. So, if you invested your tax
return every single year, $2,500 at an 8% return from age 20 to 65, and assuming that your tax return didn’t increase over time, just 2,500, by the time you were 65,
you would have $966,248.58 of tax-free money. You do not have to pay
taxes on that money. You’ve grown your money for 45 years, and you’ve essentially
become a tax-free millionaire by investing your tax
refund every single year into a Roth IRA. This is just one of those tax loopholes, and, you know, rich people secrets that you just don’t hear about unless you are actively looking for them. Hopefully you have a good tax accountant who is aware of these strategies and has encouraged you to do this. This is one of those wealth
building secrets out there that unfortunately, you are
just not learning in school. Like I said, guys, M1 Finance is a great
option for this Roth IRA. I’m gonna show you guys
just how simple it is to set this up. I’m gonna open up my
phone now and show you, and if you guys do wanna sign up, there is an affiliate link
down in the description if you decide to use it, as well as a couple more resources that talk more about the M1
Finance retirement accounts. Okay, so first of all, I’m gonna go ahead and open up the M1 Finance app on my phone. I already have a
portfolio created in here, so what I wanna show you guys is if you had a brand-new
account here from scratch, how you would go ahead and set up a portfolio for retirement. It is extremely easy. You’d go over here to your pies. You would add a new pie or portfolio, and then you’re gonna go ahead
and hit that plus button, and you’re going to go to expert pies, which are these professionally
built portfolios, and select your plans for retirement. As you can see here, it says, “Invest for your target retirement date “in a portfolio that adjusts
to your goals as you age.” So, as you get older and
closer to retirement, that portfolio becomes
more and more conservative. All you’re going to do is click on that, and down here, you say I would like to retire in, and you simply pick the year. For myself, I’m around 25 years old. I turn 24 next month. Ideally, I would retire in about 40 years, so let’s say 2060. At this point, you have three choices, aggressive, conservative, or moderate, and this all comes down
to your risk tolerance. If you are fearful of the
stock market and of risk, you would choose a conservative portfolio. If you have a high risk tolerance, you would choose aggressive, and if you’re somewhere in the middle, that would be a moderate portfolio. You can click on each of these to learn more about these portfolios, what the returns have been
over the last couple of years, and exactly what they’re
investing your money into. You can literally follow the
strategy doing exactly that and be investing money
into a Roth IRA tax free to eventually achieve
financial freedom for yourself, and you can simply just be
investing your tax refund and potentially become a millionaire following this strategy. But anyways, guys, that’s
gonna wrap up this video. These are the five simple
steps to financial freedom. Let me know what you guys think down in the comments section below. If you are following any of
these strategies yourself or if you have any other
tips or recommendations. Thank you so much for watching, and I will see you in the next video.

100 thoughts on “5 Simple Steps To Financial Freedom

  • Hi Ryan, you are absolutely correct. I recently did a video on principles of financial freedom and we basically communicate the same things, budget, get out of debt, invest, and have an emergency fund!

  • Step 1: Grow your own avocados.
    Step 2: Make avocado toast and sell it to milllenials for $17.
    Step 3: Invest all money in Ryan Scribner's stock picks.
    Step 4: Profit.

  • I just paid off my last debt bill. House, car, students loans are all finished. These tips are so important and can definitely set you on ht eright track!

  • One thing i'd like to see video made about, is how to make that extra buck or two in more remote and rural areas where for example some basic side hustles won't just work. And to add to that ways to make extra money if you don't live in usa or speak any or very little english.

  • WOW… Finally !! Its been so long you have not given us such a great video. I was about to unsubscribe but not anymore.

  • Getting out of debt is the hardest part once you're in it, but with hard work and a few months to a year of saving, anyone can do this!

  • Can you do a video on first steps once discharged from a bankruptcy to restore credit score and to not fall back in to financial trouble again. Thanks

  • Great video, Ryan.

    Rather than ROTH IRA, in the UK we have a 'Lifetime ISA (Individual Savings Account)" or LISA. You can put in up to £4,000 per year and the government will give you 25% of whatever you put in, so up to £1,000. You can take the money out tax-free if you're buying your first house, or when you reach 60. If you want to take it out for any other reason, you pay a 25% tax. Only under 40s can open one and you can only pay in until 50.. You can invest the money in shares however so a very good option for people looking to save for the long-term or for their first home. We have an ISA limit of £20k per year however so you can only put in another £16k in to your other ISAs.

  • Debt is a huge burden for many people, It takes a lot of discipline and sacrifice to pay it off but it is necessary. At least if they are watching your channel that's a good step. Keep up the awesome videos!

  • I'm a simple man, I see Ryan Scribner uploading videos related to financial advice/success, I smash the like and notification button. Keep it up man! It's always interesting seeing you offer insight about other methods to financial freedom and growth, compared to the traditional method of finishing school to get a job that most people were taught.

  • Given that I still have a 401K from a previous employer and I can't make contributions to it anymore, I'm hoping that I can carry that plan over to a new employer. If not, I think the next best thing would be to roll it over to a traditional IRA. If that happens, I can make contributions to the new employer's 401K plan and my IRA. So many options… contribute only to the IRA to build up the compounding advantage, leave it alone and max out the new 401K instead, maybe convert the old 401K to a Roth IRA? Any ideas or will I just have to crunch the numbers?

  • These super long-term investments are quite scary. What happens, if there's going to be another stock market crash? The inflation is going to be higher than the return rate of the 401k or roth IRA and people would have no choice but to withdraw both of them with high taxes. Would you mind making a video about this subject?

  • Hey Ryan, I'm really inexperienced with Roth's and investment. I was wondering how tied to a company's stability a Roth would be? In that, if I use M1 Finance look you brought up before or Vanguard, etc. do they have to be around in 40 years when I would access my funds?

  • So if an employer is willing to match your contributions and basically offering "free money" in a 401k account, then why would someone still consider a Roth IRA account? Is an IRA account a higher risk and reward system, or just another option for people to consider?

    Edit: Basically what I'm asking is…are 401k plans better for salaried employees, and Roth IRA plans better for contractor/freelancers/business owners. Because I see it as employers are giving you free money, but if you're a contractor…then you don't have an employer to match your contributions and still need a decent retirement plan.

  • I love your videos! They can be hard to understand when I make half what you made working, but you're still right. It can be hard to absorb the truth sometimes 😊

  • The sad state of the educational system is that people are highly encouraged to take on massive debt to go through college. Students need to understand what they are getting themselves into and that there are viable alternatives!

  • Id eliminate the debt that is causing me the most loss. You could owe 10,000 at 15% but have a total between 5 accounts of 10000 but at a rate of 29%.

  • I'm currently using an App called Wallet for tracking my expenses and incomes throughout the month. It's been very useful so far, I really recommend it to everyone who wants to have a clear financial status

  • I am 15 years old but still love your videos! I don't understand it all now but I will learn and your content helps me a lot. Thanks Ryan.

  • I'm interested in this … so say if you use an IRA pie from m1 and selected like 2035 and still kept working. Would you get a tax hit because you haven't/aren't retiring that year?

  • Thanks Ryan for your tips I recently invested in some stock I'm excited and moving forward with more stocks,ETFs,Affiliate Marketing is next as well Finanical Freedom is the goal thank you for all your help and advice.

  • Hey Ryan, great video, but I would like to give you a hint. Please, when you are doing these kind of videos, don't go straight to exact number for saving, do the % base. Because not everyone is living in US.
    Me for example, live in Serbia, and paycheck for most people is somewhere around 300$, so you can see, how it gets a little tricky.
    What I'm recommenting here, is do the % base of saving

  • We didn’t learn ANY of this in school. Ever. Appreciate the video!

    You must be disciplined with your budget and investment strategy. It CAN be done.

  • in Finland we don't have a 401K or a ROTH IRA, because our communist state want's us to pay high taxes and work until we are 70 years old and then die.

  • Unfortunately for me, this is a video for the financially iliterate, that are also US citizens. Im neither. But you said it was the basics so it makes sense. Good presentation otherwise 🙂 thanks

  • Just downloaded Mint on the app store. Automatic tracks your expenses and income every month. I'm in a $1000 cash flow every month 😃

  • I've been debt free for over 3 yrs and monthly budget of $1000 all in even with entertainment/traveling but always come in between $900-950. I always try to find free/cheap best experiences in everything and it has allowed me to invest the rest in multiple accounts.

  • Thank you for this video. I noted that the recommendation for the emergency fund is to use this in case of emergency medical.

    Why not use some of the money to get medical, life, car, home & dental insurance.

    What is your recommendation on this?

    Also, paying off the mortgage is something that is attainable, especially at $157k. Eliminating that liability & turning it into an asset will lead to more control & financial freedom.

  • For the emergency fund part even though I have an EBT card for just buying food I limited myself to only spend around $100 a month.

    Since then after doing that for about 2 years when the government shutdown recently happened I had over $1500 left in case if something happened.

    Just thankful that I did it so it will last me over a year.

  • I did a similar video on my channel recently. I wish I had access to this kind of information when I was younger. It’s amazing what we aren’t taught and have to learn on our own!

  • Bro I just Turned 19 well In Jan and so far This Year I've been grinding towards being Financially free in my early 20's and all I can say is, I accomplished so much stuff in just these 2 month's that man I see my goal getting closer and closer. And hell no I'm not stopping anytime soon. I wasted my teenage year's, these next 2 year's are going to be 24/7 Grind time.

  • These are great steps! The Law of Attraction is so powerful when we set out to achieve something. Envision it & take action!

  • love the tips and youre very right, just wanna mention that this is the 5 steps to financial freedom for when you are 60. the long route, gotta be a lot more active in your investing if you want to do it quicker, but nevertheless itll get it done for sure.

  • can you do a video on the IPOs of Lyft and Uber since they're going public soon? would love to hear your thoughts

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