Free Yourself from Financial Debts

by Colleen Craig, CPA, CA, FCIRP, LIT
July 27, 2021

If you were to google “Steps to Financial Freedom,” there is no shortage of experts’ suggestions, tips, Top 10 lists, publications and posts, outlining the best way to achieve financial freedom. Let’s look at what most of these lists have in common and the best lessons to be learned from them.

What are the Cold Hard Facts About Financial Freedom?

You will never get everything you want in life. It is an integral part of human existence that we all want a little more than what we have or can achieve. This want is the motivation that makes us get out of bed every day – the desire to have that “one other” thing that keeps us moving forwards in life. 

This is ever more pressing in the era of social media where we can begin to believe that “everyone else” has everything that they have ever wanted – so why shouldn’t we?

But from a financial point of view, the ever-increasing desire to have more can lead to significant financial burdens and overwhelming debt obligations. So, where to start in planning to free yourself from your debts?

Be realistic

  • Live on less than you make. Take a hard look at your take-home pay and expenses each month. Most experts say you should be saving at least 20% of what you make.
  • Needs vs. wants. Identify the excess in your life – this goes beyond the current thought of eliminating “what doesn’t bring you joy.” We all need to eat, but that doesn’t mean we need a diet of filet mignon and foie gras.

Be hard on yourself - don’t kid yourself

  • Understand where you're at and how much you can earn. You can't achieve financial freedom without knowing your starting point. Maybe you don't even know where your paychecks are going. Look at your bank statements and see what you’re spending the most money on every month. Maybe those daily $6 lattes are adding up, or you subscribed to a streaming service and forgot to cancel it.
  • Create a Budget. Not everyone will have the same resources to deal with. As a CIRP-designated Licensed Insolvency Trustee, a large majority of the people that we deal with have acquired debt just to help them get through basic living obligations. This is where “advice” becomes trickier – some people will simply have to make more modest plans and budgets.

Put a plan in place and stick to it forever

  • Being financially prudent is a life-long obligation. It is not a short-term fix.
  • Once you’ve made your budget, STICK TO IT. Spend only what you can afford to spend, on things you can afford to buy.
  • Start an emergency fund. A common rule of thumb is to maintain an emergency fund equal to three to six months' expenses. So if you spend $3,000 per month, you will want to have an emergency fund of $9,000 – $18,000. This should be enough to let you weather a significant financial catastrophe such as an injury or losing your job.
  • Continuous education. If you can afford it and can make time for higher education, it is always a good idea to pursue it. If you are going to invest, understand the market, fees, and a realistic rate of return.
  • Social assistance. What social programs are you entitled to receive? What free services are available in your area? Don’t feel ashamed to reach out to others for help.
  • Invest your savings, but do it wisely. Unsafe investments, multi-level marketing, and any other get rich quick schemes, these are all ways many people have gone into debt. If something sounds too good to be true, it probably is.
  • Create automatic savings from you accounts. Be disciplined – new habits are hard to start and will take commitment. But the best time to start saving isn’t tomorrow - it’s now.

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