Financial Freedom: Step-By-Step Stages for Goal Setting

financial freedom

I definitely dream of financial freedom. I would love to just have so much money that I don’t have to think about money ever again. Of course, that’s not going to be realistic for most of us. However, we can start small and then go step-by-step to increase how close we can get to financial freedom. A recent Forbes article laid out the 8 levels of financial freedom, which provide a good guide for setting personal finance goals.

Start By Earning More Than You Need

If you’re living paycheck to paycheck then the first step is to get out of that rut. Cut back drastically on spending. Do all that you can to increase income. If you can’t save money then you definitely can’t ever reach financial freedom.

Save Enough Money to Take a Work Break

Most people want financial freedom because they don’t want to work so much. When you’re in that paycheck-to-paycheck phase, it feels like you’ll never be able to stop working. Therefore, the next step is try to save enough money to give yourself a small taste of that life.

For example, create a savings account that will allow you to take a sabbatical from work. Even if you decide not to take it, having the money in that account will make you immediately feel like you have so much more financial freedom. Personally, I love my work, but when I feel like I have to do it just to get by then I start to resent it. That savings helps a lot.

Work Towards Small Luxuries and Extra Savings

Once you have enough in savings that you feel like you can breathe, it’s time to start thinking about your daily life. Financial freedom means that you’re able to buy the things that you want. Of course, I don’t think it’s useful to just splurge on a lot of unnecessary spending. However, I do think it’s good to recognize what small little luxuries will make your daily life better. The goal at this stage is to balance your income and spending so that you get to enjoy those luxuries regularly while still setting aside savings from every paycheck.

Financial Freedom: Money or Time

The Forbes article says that “freedom of time” is the next level. I actually think this is super important. I consider it to be one of the first steps, prioritizing it over a work sabbatical or those small luxuries. However, everyone has different needs and desires when it comes to financial freedom. For me, freedom of time means that even though I work a lot, I’m able to do so on my schedule. I’m also able to be location-independent. Those things make me feel like I have the freedom that I want.

Plan for Retirement

Once you are living comfortably, it’s definitely time to think about setting aside money for retirement. After all, that’s when you’re really going to need financial freedom. Forbes breaks this down into two levels. First, save enough for a decent basic retirement. Then, once you’ve achieved that, start saving for the type of retirement that you really want to have.

Of course, life happens, and we can’t always work through these steps in a linear fashion. Nevertheless, they provide a great guideline for some basic goal setting with financial freedom in mind.

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Do Smart Homes Save Money?

smart homes

I was thinking about adding some smart technology to my home. I had been visiting a friend who had Alexa set up to control all sorts of different things in the house. I got a kick out of saying, “Alexa, turn on …” and choosing the lights I wanted on and off, the music I wanted playing, and so forth. I’ve seen those commercials with the refrigerators and ovens that practically do everything themselves with just the sound of a voice. We’re all moving towards having some version of smart homes. However, when I looked into the costs of just a few of those things, I wasn’t so sure anymore.

Do Smart Homes Save Money?

I’ve always figured that smart homes generally cost money to set up but have the potential to save money in the long run. However, I think that type of thinking primarily comes from the type of smart technology that makes a home more energy-efficient. When it comes to all of the technology available today to make a home more convenient, it may not actually save money. In fact, setting up a smart home can probably cost a lot of money that you don’t recoup. So, I’m trying to figure it out; do smart homes save money? Or do they at least have the potential to pay for themselves?

Energy-Saving Technology Can Save Money

Doing my research confirmed what I expected. It is possible for smart homes to save money if you’re talking about smart technology that saves energy. In other words, if you update your house to reduce energy waste then over time you can save a lot of money on energy bills. I found a helpful infographic that showed how some of this technology pays for itself then saves you money over the long run.

In fact, that research reminded me that I can make small investments that could make a difference. For example, I never thought about getting smart power strips. I use tons of power strips in my home already. Smart power strips monitor energy usage and turn the power off when it’s not in use. That could be really convenient. It could save energy. I like the green aspect of saving energy in addition to the fact that it helps me save money.

A smart thermostat is another really popular device in smart homes. It seems to also pay for itself in terms of quickly offering cost-effective energy savings. Of course, one could argue that simply setting your own thermostat to appropriate temperatures would achieve the same effect. So it’s not that we need the technology to save energy, necessarily, but it might be a small investment to make doing so more convenient.

Convenient Technology Doesn’t Necessarily Save Money

Some of the other technology in smart homes doesn’t seem like it pays off, though. For example, that same infographic shows details about smart refrigerators. A smart refrigerator can actually show you when items are about to go bad. Arguably, you might then use more of your food in time, and not wasting it could save you money. But it doesn’t save you that much. According to the infographic, it takes thirty years for a smart refrigerator to pay for itself. That’s before you would even start saving money thanks to it. Technology often needs frequent updates and repairs so it’s unlikely you’d keep that refrigerator much longer than thirty years (if you even make it that long).

Will I Invest In Smart Home Technology?

So, here’s what it boils down to … it doesn’t make financial sense for me to buy most types of smart technology for my home. The things that are most fun and add convenience generally cost more than they save. However, there might be a few small changes (smart power strips, smarter lighting) that could actually save me money in the long run. I don’t need them. It’s not something I’m going to get at this time. But as the technology keeps changing, I’ll keep reviewing the costs and benefits. It may make sense for me to look at smart homes again in the future.

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LLC vs. Sole Proprietorship: Which One Makes More Financial Sense?

llc vs sole proprietorship

Should I select an LLC vs. sole proprietorship? That’s the question that I’ve been asking myself lately as I look at small business planning.

You see, I’ve been an independent contractor / freelancer for a long time. However, I’ve recently started thinking that it makes financial sense to separate my personal and business money. Of course, there are many different ways to do that, but setting myself up as a business seems to be a good next step.

Most likely I’m going to go with a sole proprietorship. I had that kind of business a long time ago and it seemed to suit me just fine. Nevertheless, I don’t just want to jump in willy nilly, so I’m carefully exploring the differences between LLC vs sole proprietorship to make sure I go down the right path.

LLC vs. Sole Proprietorship: Liability

There are many different ways to structure a business. I’ve narrowed it down to LLC vs sole proprietorship. The main difference as I’ve always understood is about my own personal liability. An LLC is a “limited liability corporation” which means that I as an individual have limited liability in comparison to if I were a sole proprietor. In other words, if someone sues my business and I lose, the costs can only affect my business, not my personal finances. In contrast, as a sole proprietor, I’m personally still responsible for the costs of the business. The same is true for creditor issues. It’s worth taking that liability into consideration.

LLCs Cost More to Set Up

Although that limited liability is nice, it comes with a price. It doesn’t really cost much at all to set up a sole proprietorship business. In contrast, there are a lot of fees involved with setting up an LLC. You have to register with the state so there are fees associated with registration and filing documents. Oftentimes, LLCs are also subject to ongoing annual fees. In other words, if you don’t pay each year, then you don’t maintain your LLC registration. You don’t have those costs associated with setting up a sole proprietor business. In general, LLCs are subject to a lot more regulations, which can mean more paperwork, which can mean more time and money.

LLC vs. Sole Proprietorship: Taxes

I currently pay taxes as a self-employed person. If I choose to set up my business as a sole proprietor then I will still pay taxes as a self-employed person. Therefore, for better or worse, my tax situation isn’t going to change. Things seem a little bit more complicated if I decide to set up an LLC. An LLC can be a partnership or a corporation, but it can also be solely-owned. In the later case, it would be taxed like a sole proprietorship.

Therefore, there doesn’t seem to be a huge tax difference for me personally by doing LLC vs sole proprietorship. That said, if I opted to file as a corporation, that could make a difference, which is something worth exploring more. If I do an LLC, I’ll have to file separate business and personal taxes, which I wouldn’t have to do if I set up as a sole proprietor.

Separating Business and Personal Finances

The main reason that I was planning to set myself up as a business is because I want to separate my finances. However, I’m leaning towards doing a sole proprietorship, which actually doesn’t require me to separate my finances. An LLC strictly requires that you keep your business and personal expenses entirely separate. In contrast, you don’t have to do that with a sole proprietorship. You are the business. Therefore, that part wouldn’t actually be different than what I’m doing now as a freelancer. Of course, I still want to separate them, but in the eyes of the government, they wouldn’t need to be.

A sole proprietorship is the right thing for me. My business finances are pretty simple. I don’t run a lot of risk regarding liability. And I don’t want to spend the extra money to become an LLC. But anyone making this decision should certainly look at both options with an eye towards what makes financial sense for them.

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