Financial Freedom Made Easy

Financial Freedom Made Easy

14 easy steps to achieve Financial Freedom



What is Financial Freedom? Financial Freedom is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. Financial freedom is the state where you can do what you want, when you want and not have to worry about financial concerns.

Chapter 1. Make a budget

A budget is used to see your income less expenses for a given period, and is a valuable tool in understanding where your money is coming from as well as where your money is going. Budgeting will help you prioritize your spending and help you reach your financial goals faster, no matter how large or little you earn!

Budgeting can help breakdown and understand your spending habits and will often surprise you how little expenses can add up. For example buying a morning coffee for $5 every morning on your way to work can add up to $1200 a year!

Having a budget will help ease your stress levels, things such as unexpected car troubles or wanting to go on a holiday with a friend? You won’t have to worry about if you have the money or not, because with a budget you will already know if you can afford to.

Budgets should be reviewed monthly to make sure you are on target to achieve your financial goals.

Excel spreadsheets are a golden tool when creating a budget and will help your cause in tracking expenses immensely.

Find some excel spreadsheet templates for personal finance here:


Chapter 2. Set your financial goals

After you complete your budget, you need to figure out what your financial goals are. It could be saving up for a down payment for a house, saving for a new car, or setting yourself up for early retirement.


Don’t just think about your goals, write them down!

Write a list of your goals, both short term and long term. Stick to them and do regular  reviews to see how they are progressing. It also helps to categorize your financial goals by how soon you expect them to be realized. Most financial goals can be categorized into Short, Medium, or Long Term goals.





Short Term

Daily to 1 year

  • Daily – Make myself coffee in the morning instead of buying it.

  • Weekly – Review my finances every week to see how I’m doing.

  • Monthly – Reduce my monthly spending on eating out by $100.

  • 1 year – Reduce my debt/income ratio by 10% this time next year.

Medium Term

1 to 5 years

  • Buy a home (or save enough for a 20% down payment).

  • Pay off car loan early.

Long Term

5 to 10 years+

  • Pay off X% off the principal on your  home loan


It helps to have your shorter term goals support your larger goals. If you are planning ambitious goals then you must outline the steps it takes to get there and how to measure success. Not figuring out how you plan to keep on track is a sure way to not achieve your goals–if you’re not tracking your progress how will you know when you’ve achieved the goal anyway?

Set reasonable financial goals

Wanting to accumulate a million dollars in savings is a lofty goal for anyone, but even more so for people who are already living financially conservatively. What will you have to give up to achieve that goal if you are working as a waiter in a small town? It would seem quite a lot. And what do you want a million dollars for anyway? Just to have it? Will that help you further your creative interests? Or is it an arbitrary number just to motivate you? You have to do some soul-searching when you set your financial goals to determine “what do you need to be happy?” If your financial goals are just there so you actually have goals you aren’t understanding the purpose of this exercise.


A reasonable and modest financial goal could be as simple as wanting to regularly review your spending habits. There aren’t any numbers associated with that goal, but it is still advancing you towards the overall goal of fiscal solvency (the ability to meet all of one’s committed expenses).


People often overestimate what they can achieve in a year but underestimate what they can achieve in 5 years! Here are some examples of reasonable and unreasonable financial goals that people set.

Examples of reasonable financial goals

  • Aim to save and have at least $5000 in your rainy day fund.

  • Invest at least 30% of your after tax pay at the end of each month.


Examples of some unreasonable financial goals

  • Aiming to buy a million dollar mansion while only earning $40k per year

  • Wanting to Purchase or getting a loan to buy a car, that’s worth more than what you earn per year.

Chapter 3.     Reduce your expenses


  • By reducing one’s expenses, you are able to invest and save your money that otherwise might have been wasted on frivolous purchases. When adding more income is difficult or not possible, in order to increase the amount you save you should seriously consider trying to reduce your regular expenses, when possible. By all means cut your regular expenses but don’t forgo the things you love, if you consistently go and enjoy going to the gym then a gym membership is well more than worthwhile. Same with a golf membership or sports fees, if you truly love it and will use them don’t cut them out of your life only to achieve financial freedom only a little bit faster. While I cannot wait to reach Financial Independence, I am happy to save and wait. Sometimes “it’s not about the destination it’s about the journey”.


Suggestions on how to reduce your regular expenses

Here are some ideas to help you determine how best to minimize your expenses:

    • Cut back on entertainment spending:

  • Eliminate or cut down on your entertainment expenses, as these are expensive by alone and easily add up when not carefully monitored

  • Invite your friends over to your place for drinks rather than going out to bars and Download or rent a movie at home rather than going out to the movies. clubs, which can often charge just to enter and drinks costs many times more than buying them at a grocery store.

    • Find savings in your eating home cooked meals rather than going out for dinner.

    • Find alternatives to expensive food items. For instance you could try to eat two vegetarian meals per week to substitute for the generally high price of meat products (itabits:

  • Make meals at home (healthier also).

  • Do your weekly grocery shopping at Aldi or go to the Farmers Markets nearing towards closing time (there can be many discounts found as stalls are aiming to get rid of produce)

    • Save some money on your commute:

  • You could try to ride your bike instead of driving to work.

  • Carpool with a mate from work instead of paying for petrol all on your own.

  • Making use of public transport (Trains, buses, trams etc.)


Chapter 4. Build your fiscal foundation

Build your rainy day fund

A rainy day fund or emergency fund is basically a buffer for the unexpected financial troubles in life. It is a liquid sum of money that shouldn’t be touched unless an unexpected event comes up. Some examples of when you will need to access your rainy day fund are in the case of unexpected car troubles and repairs, emergency travel as well as something such as a large excess for an insurance claim if you were to ever need to.


What size rainy day fund should I have?

In most cases a 3-6 months worth of expenses should be fine. If you work in a highly uncertain and unstable job it may be more suitable to have a larger rainy day fund such as 9-12 months worth of expenses. A smaller emergency fund of $1,000 or 1 month of expenses is temporarily acceptable while paying off credit card debt.


What kind of account should I hold my rainy day fund in?

Generally emergency and rainy day funds should be held in safe investments that can be liquidated (to convert inventory, securities, or other assets into cash.) in a hurry. Savings accounts are the most common choice to store your rainy day fund, places where your rainy day fund should not be stored in are stocks, credit cards, metals (gold etc.) or anything else that is volatile and can drop in value easily without warning.


Chapter 5. Pay off your debts

There are two main methods of paying down debt:


  • The Avalanche Method

  • The Snowball Method


The Avalanche Method

In the avalanche method, debts are paid down in order of interest rate, starting with the debt that carries the highest interest rate. This is the financially optimal method of paying down debt, and you will pay less money overall compared to the snowball method.


The Snowball Method

In the snowball method, debts are paid down in order of balance size, starting with the smallest. Paying off small debts first may give you a psychological boost and improve one’s cash flow situation, as paid off debts free up minimum payments. The downside is that larger loans (that may be at higher interest rates) are left untouched for longer, costing more in the long run.

In both cases you should make the minimum payments on all of your debts before choosing which method to devote extra money to.

Which method is best?


It depends on your situation and your personal habits.The snowball method offers a great psychological boost once you’ve finally paid off a debt, and that can play a huge factor in helping you stay the course so you can knock down all your debts. So if you’re the type that has trouble sticking to a budget or becoming unmotivated, that might be a good method to go with.


However, high interest rates can cause you to pay more money in the long run, and that’s money you’re paying just for having to borrow money, you don’t receive anything in return. So the avalanche method merits consideration, especially if you carry good portions of high-interest debt.

Whichever method you choose the important thing is to start paying your debts as soon as you can, and to keep paying them until they’re gone, and to avoid accumulating more debt like the plague.


Chapter 6. Superannuation

The problem many of us have is that we do not know

  • Whether we will have enough when we retire to keep us going right through retirement

  • How much we need to save outside of super


When planning your financial goals, work from Back to Front


The key is to achieving your long-term financial goals is to plan from back to front. Instead of working from how much you contribute today (front), expected rates of return and expected wage increases – all of which are assumption dependent, the key is to  start your planning with what you want when you retire.  This is totally subjective and there is no right, wrong or unrealistic answer.  If you want to live on a million dollars in today’s money when you retire then you can work out what you need to do to get there.


1. Work out how much money you want per year in retirement

  • The fact is that you don’t actually need that much per year in retirement.

  • You do not have the same obligations as you do now – your house is paid off, you have no mortgage, the children have moved out

  • You are not limited to travelling and holidaying during the peak seasons, meaning holidays are cheaper

  • Chances are that you are not as active as you are now so you will not be able to do the types of activities that you do now

  • Try and think about what you would spend your retirement doing and how much this would cost and then add a bit extra – it is always good to have a bit of a buffer

  • For the purposes of this example I am going to say that I will need $100,000 per annum in retirement (in today’s dollars)

2. Estimate what age you are going to retire at

  • For the purpose of this example I will say I am going to retire at 60 and I am currently 24 years old.

3. Estimate how long you will need the money for

  • This is quite subjective but I’m going to say I will need it until I’m 85.  Chances are I won’t live that long but it is always better to have too much money in retirement rather than too little.

  • In the example that is going to be 25 years of income required.

4. This will give you your estimated required nest egg

  • In today’s dollars that’s 25 years of $100,000 which is $2,500,000

  • Calculate this at the point of your retirement (i.e. inflation adjust it until you’re retirement age).  For me that is 36 years away.  I’m going to assume an inflation rate of 2.5% p.a.

  • This yields a future value of $6,081,338


Don’t be scared off by the big numbers, keep going through the process!


The future value of 6 million dollars looks HUGE.  But don’t forget that you are just working out how to achieve it.  You are never going to get anywhere by lowering your expectations.

5. Calculate how much you will have in superannuation


The next step is to see how much you will have in superannuation assuming you make no extra contributions

Because superannuation is a government requirement of your employer – this is a savings number that you have no choice about.  Thus it should be the first part of your calculation in how to get to your goal.  Follow the steps below using your own numbers.

    1. Take the super you already have as a starting point

  1. Most of us already have a super balance so use this as your starting point

  2. In my example I will use $28,000 as the starting point

    1. Work out your total wage and the amount of superannuation that comes out of it

  1. For the purposes of this example I’m going to say the wage is $150,000

  2. Superannuation is currently 9.50% p.a.

  3. Thus this year I will get a superannuation contribution of $150,000 x 9.50% = $14,250

    1. Work out the amount your wage (and thus super) is expected to increase each year

  1. Most of us get at least inflation increases to our wage each year (i.e. 2.5%), If you are in an industry which typically gets more than this then put this down

  2. I am going to use 4%

    1. Work out the expected return on your superannuation

  1. If you are in the high growth option in your superannuation plan then use a return figure of about 8%

  2. If you are in the cash only bucket then use more like 4% and if you are in between then use a number in between

  3. I am quite risk neutral so I will use 7.5% p.a.

    1. Don’t forget taxes

  1. Do not forget that earnings within superannuation are taxed at 15% p.a. so do not forget to include this in your calculations

    1. Set up a spreadsheet to do your calculations

  1. For the parameters listed above I get an ending value of $2,944,220


The remaining amount needed for your nest egg is the amount you need to save / invest / contribute over and above your super amount to reach your retirement nest egg.

In my example the difference is $3,137,118 which is the amount I will need to come up with over my investment life to fund my retirement nest egg.  This again seems like a large number but if you start to break it down over a long period of time (in my example 36 years) it is much easier. For example the following ways can get you to your goal

  • An extra $25,000 per year (or ~$2,000 per month) in superannuation will get you to your target easily.  If you can set up and monitor a budget as well as a savings plan than you will know this task can be achieved.

  • If you vary some of your assumptions it becomes easier to get there.  E.g. if you include 12% contributions from 2015 you only need to contribute $19,000 per year (~$1,500 per month) to get to your desired target

  • Note these additional amounts are not inflation adjusted.  I.e. even though your wage is going up every year the amount you contribute is staying constant.  If you do want to inflation adjust how much you contribute your contributions will be even less.

Your goal is achievable!

You just need to plan early and work out what you need to do to get where you want to go! All goals are achievable – you just need to work out early what your plan of attack is and then let the power of compounding returns work over a long period of time.  The fact is that you are at a major advantage if you are doing this planning process in your mid 20s compared to your late 40s so start early and retirement can be easy.



Chapter 7. Invest in yourself


It has been said time and time before but, in your 20s you learn, in your 30s you earn. So take those extra classes, earn advanced degrees, get relevant certifications, enrol in workshops, attend conferences or participate in webinars. Even take an excel course online, or learn a new language like Mandarin. All these things listed will help you improve your earning potential as well as improve your knowledge.


Chapter 8. Get the Bank off your back


While you will often see in the media about ways to cut your home loan costs, there are really only two ways to pay off your mortgage quicker: By lowering your interest rate on the mortgage, or increasing your repayments on the mortgage.

Just because the bank gives you 30 years to pay off your loan doesn’t mean you need to take that long.

If you pay an extra $500 a month off your mortgage, you’ll slash 10 years off the loan and save over $100,000 in interest. It’s like compound interest in reverse. And once you’ve paid off your home you’re well on your way to Financial Freedom.[3]

(get graph from


Chapter 9.   Increase your income

Find ways to supplement your income gaps. Here are a few quick ideas to get you started. The goal is find a way to earn some extra money so ensure that you meet your savings goals. There are many creative ways you can do this.


  • Deliver pizza at night or work a second job until your credit card is paid off in full

  • Talk to your boss about getting a raise (“Don’t ask, don’t get”)

  • Sell stuff you don’t use on eBay or Gumtree

  • Start a small internet side business to get another source of income

  • Became conscious of every dollar you spend (not in penny-pinching way, just being aware of how easy it is to spend it on unnecessary items)



Chapter 10.  Renting vs. Buying


An age old question is whether to rent or buy your own house?


Far too many people can’t get past the simplistic idea that rent is “money down the toilet” while a mortgage is money that is going into owning your home. Hopefully this video will help explain some of the benefits and some different perspectives of renting vs buying (albeit on home ownership in Canada)


Chapter 11.  Shares vs. Real estate


Both property and shares have served investors well over a number of years but many investors will argue why one is better than the other. Each has its diehards with their own set of statistics that prove that one is a better bet than the other.

Real Estate:

In real estate straight away there are barriers to entry that may either work for or against you. The first challenge for new homeowners and investors alike is building up or finding the funds for a deposit. In comparison to shares, new investors love the fact they can see what they own. Real estate is tangible. DIY improvements can be made to increase the value of the investment; however improvements can also be a negative for margins.

If you decide to let out your property, there is management risks associated with it: physical improvements to the house (new carpets, painting etc.), real estate agents fees, rates, utilities… the list continues.

Overall there is a much bigger time commitment and, in my opinion, more risks that go into property when compared to shares, but if managed correctly a property investment can reward an investor very well.


Many investors might have heard this a million times before but I’ll say it again. A dollar invested into the share market in January 1900 would now be worth around $280,000.



Source: Global Financial Data, AMP.


Compared to property, shares are a more liquid asset and investing in them is much easier to undertake yourself and requires fewer funds. Some online brokers offer trades for under $10 and include information on many of Australia’s most popular stocks and companies. There are no agents, lawyers, builders or surveyors to pay to start investing, and with as little $500 individuals can begin on their way to financial freedom.

However, it’s not all sunshine and rainbows. Many new investors (and seasoned ones for that matter) begin to focus too much on the short term outlook of things. They get caught up on the daily, weekly, monthly or even yearly price movements of their holdings and make decisions to sell when they are scared, possibly causing them to lose massive amounts of money and miss out on gains along the way. From the graph above it’s obvious that if investors took their funds from shares after a crash in the early part of the 20th century, they would have missed out on many years of growth.


In Summary:

When you’re a shareholder, company executives work for you; when you’re a property investor it’s up to you to create that value or hold out and for the market to go up. If you buy the right companies not only will you be setting yourself up for long-term gains, you’ll also be rewarded with dividends along the way. You’ve got to consider and weigh up the options for what’s right for your particular situation. If you can afford to buy both, do so, because diversifying is important in limiting losses. [4]


Chapter 12.  What to look for when buying shares in a Company


Think of buying shares of a company just like buying a stake in a local small business. Does the business have staying power? How much cash flows in and out? Do you trust the management and employees to do right by you as an outside investor?

Specifically, here are a few things to look for:

1. A sustainable competitive advantage:


Some businesses have unique, lasting competitive advantages that allow them to earn outsized profits. The more durable a company’s competitive advantage, the larger the “moat” that surrounds its financial fortress. Think about Woolworths’ and Wesfarmers’ pure scale and size, or CSL’s intellectual property. These are classic examples of sustainable competitive advantages.

2. Cash aplenty:


Cash is the lifeblood of any business. It pays the bills and allows the business to engage in new growth projects. Good investors look for low-debt, cash-rich balance sheets and steady cash flows.  Specifically, free cash flow — the cash left over after funding the business’ operations and growth — which fuels share repurchases and those sweet, sweet dividends that show up in your bank account every six months.

3. Strong leadership:


Is management invested alongside you? Do they have a history of creating value for shareholders? Do they have years and years of relevant experience? Do they treat outside shareholders (business partners) with respect?

If you find a company that nails all of the above mentioned, odds are good that you’re looking at a great candidate to invest your hard-earned cash. [5]


Chapter 13.  How to get started in shares


You’ve paid off your credit cards. You’ve saved up a rainy day fund. You’ve opened an online brokerage account. You’ve done your research and found the company of your dreams.

First, this is just one of many investments you’ll end up owning. So you want to start investing with baby steps first, not leaps and bounds. The key is to not forget that your first investment is also a learning experience. As any craftsman will tell you, there’s no better way to learn than by doing.

A journey of a thousand miles begins with a single step. And that’s what we recommend to you: Buy $500 worth of your favourite company. Just one company. This one lot of shares will teach you more about life as an investor than I could ever hope to teach in this book. Follow it. Get to know it. Read the news earnings releases, look at the company’s presentations, and see how the share’s daily fluctuations affect you. For future purchases, you should keep trading costs and commissions to less than 2% of your total purchase amount (e.g. a $1500 purchase of shares with a $30 brokerage fee will represent 2% of your total purchase amount, thus keeping costs down. The more you purchase the lower the % will be, so if possible later on when buying shares remember the more the merrier!), but we’ll let that slide on your first purchase.

While buying shares in companies is great, you would be insane not to look into buying a stake in an index tracking ETF.

Index tracking funds don’t look to beat the market — they look to match it as closely as possible. That might not sound enticing at first blush, but consider that index funds offer:

1. Instant diversification:


When you invest in an index fund, in one purchase of shares in an ETF you’ve spread your dollars across industries, markets, currencies, and countries, substantially lowering your risk in the process.

2. Low costs:


Index funds have much lower expenses than actively managed funds. The average actively managed US fund charges its investors 1.4% for the privilege of owning shares. Vanguard Australian Shares Index ETF (VAS), meanwhile, carries an annual fee of just 0.27%!

3. Superior returns:


Numerous studies both in the US and here in Australia have shown that you’re likely to underperform the index by choosing instead invest in a typical “industry” fund. Over the course of ten years only ten of the ten thousand actively managed mutual funds available managed to beat the S&P 500 consistently. [6]

And as mentioned just previously, you’ll pay a lot more in fees for that ‘privilege’.

Little wonder that many think index funds should be the foundation of anyone’s portfolio. But for now, we simply recommend that for every dollar you put into individual shares, you roll the same amount into an index tracking fund (the Vanguard ETF mentioned above is good choice). [7]


Chapter 14. Start Compounding your wealth

Compounding is the greatest financial force on earth – it’s the great leveller of life in that it takes time, not large slabs of money, to make it work. Yet most people never get themselves into a position to make it work. If you had put away $10,000 in an ETF that tracked the australian market in January 1970, it would be worth over $685,000 today! Similarly if you had put $10,000 in an ETF that tracked International shares it would be worth over $545,000! The trick to compounding your wealth is to give it time, you don’t have to invest huge sums of money into it to make it profitable and see good gains on your original investment.





More Resources

Additional Reading

  • The Millionaire Next Door by Thomas Stanley.

  • A Random Walk Down Wall Street by Burton G. Malkiel.

  • The Richest Man in Babylon by George Clason.

  • The Bogleheads’ Guide to Investing by Taylor Larimore.

  • The Intelligent Investor by Benjamin Graham.

Online Resources


    • Compound Annual Growth Rate Calculator: A handy little calculator that lets you find the annualized growth rate of the S&P 500 over the date range that you specify

    • Mortgage Repayment Calculator:

    • Superannuation Calculator:

    • Renting vs. Buying Calculator



This of resources that were referenced to create this document.


[1] The Power of Five Years, Scott Pape

Available at:

[2] Journey to 90 million: How much superannuation will I need when I retire?

Available at:

[3] Get the Banker off Your Back, Scott Pape

Available at:

[4] Shares versus Property

Available at:

[5] Buy Your First Shares

Available at:

[6] Wall Street Is A Rentier Rip-Off: Index Funds Beat 99.6% Of Managers Over Ten Years

Available at:

[7] Buy Your First Shares

Available at:

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