7 Steps to Financial Freedom

To design your own future, you must identify your own priorities and values and determine what’s meaningful to you.

You need to be willing to call the shots in your life and willing to pick up the pen and compose an ending to your own story.

When you arrive at the point in life where you’re the master of your money, there’s immense freedom. Yet, you still must continually work to master it and resubmit to God’s will in your life.

 STEP 1: ESCALATE

The first step to financial freedom is to escalate by increasing your ability to earn. I had the opportunity to share this advice with several government ministers in Uganda when they came to a Triple X Factor presentation in Kampala. In that gathering of about 25 leaders, I was fascinated by some of the questions they asked. As we went around the room discussing the Triple X Factor, one of the younger men in the group asked, “What do we do here in Kampala when we don’t have a lot of resources and capital to start businesses?” I told him one thing to do that wouldn’t cost him a lot of money is to increase his knowledge about how to do business and make money. I recommended he seek education in any form. There are all kinds of people, myself included, who are giving free content out to the world on how to do business and build wealth. Take advantage of this! Read blogs and books. Listen to podcasts and watch videos. Find mentors knowledgeable in wealth building.

You increase your ability to earn by increasing your knowledge, understanding and wisdom, because you get paid for value—not for time. The more you know and have on your resumé, the more you can earn. In other words: the more you learn, the more you earn.

STEP 2: ELIMINATE

The second step to financial freedom is to eliminate consumer debt. Consumer debt is an impasse in our ability to increase our wealth. When you have debt, you pay interest, and that interest takes away from the money you could use to build wealth. You’re actually building someone else’s wealth when you pay interest, which is why it’s important to eliminate consumer debt.

In the First X, the dotted line goes up because you’re escalating your ability to earn. The asterisks go down because you’re eliminating debt. This illustrates the first two steps to reaching the First X— escalate your ability to earn and eliminate consumer debt.

You might ask, “Will this cause me to build wealth?” Of course not! You won’t build wealth by just eliminating consumer debt, but these two steps will position you to start building wealth.

The amount of consumer debt in America is insane. The total outstanding national revolving debt (including credit card debt, but not mortgage debt) in 2013 was $847 billion. That’s in the United States alone. Our debt is equal to the gross domestic product of Belgium and Denmark combined! Yet so many in the United States wonder why we cannot get ahead.

In the next chapter, I’ll walk you through how to eliminate consumer debt.

STEP 3: ACCUMULATE

 Now it’s time to move forward to the third step to financial freedom, which is to accumulate. Accumulating wealth is the beginning of the Second X. At this step, you will save for emergencies and start saving for a home. First, create a savings account and stock it up for several months, and then start saving for a home (if you don’t already have one).

In the first X, you will learn to live on 80% of your income with 10% going to your tithes and another 10% going to your investments. If you are able, and really want to escalate your wealth, you can live off of 70% of your income. In this scenario you would tithe 10%, professionally invest 10%, and personally invest 10%.

Regardless of whether you live off 70% or 80% of your income, at this step one of the first things you should do is put 10% toward an emergency savings account. In fact, I recommend setting aside three to six months of your living expenses toward this account. Of course, not everyone will opt to have this emergency fund, but I strongly encourage you to have some source of cash besides your credit cards to operate with in case the need arises.

Once you’ve stored up the emergency fund, you can begin using that same 10% to save up for a home. Many people ask about renting vs. buying. As long as you’re settling down in an area for a while and are able to not overpay for a property, I would suggest you buy instead of rent. Remember when you buy your first house, you’re buying an asset. Therefore, it will appreciate in value.

Today, with the Federal Housing Administration (FHA), a government mortgage program, you can buy a home for 3% down. There are also programs for brand new home buyers that will provide you with the down payment. At this step, it’s important for you to start saving for a home. Remember, you’re positioning yourself to build wealth.

STEP 4: PARTICIPATE

After you’ve actively saved for a home, it’s time for the fourth step, which is to participate. You participate by purchasing your home and opening a Roth IRA. You need to purchase your own home before you start buying investment property. Owning an asset, and managing it closely, will really grow you before you move on to build the Second X.

There are certain advantages to purchasing your own home. One advantage is that you will have a capital gains exemption. This means that if the home is your primary residence, you can make up to $500,000 profit on your house, tax-free. Not tax deferred—tax free! This is a wonderful thing! For young people especially, I encourage you to open a Roth IRA. We’ll talk about different types of IRA’s later but the simple principle is this: Each year that you put money into a Roth IRA, you don’t get to take that money as a tax deduction for that year. How- ever, all of the earnings in that Roth IRA over that whole period of time are tax free. Plus, you can borrow against that IRA on the money you put in (not including the earnings). You can borrow on it with no penalty or issue. For instance, you might use it for a down payment on a house. A Roth IRA is almost always the best way to go as far as IRA’s are concerned. In order to participate, you must purchase a home and start building a Roth IRA.

After I had gone through this process of participation (buying a home), I really accelerated. The most real estate transactions I’ve ever done in one year was about 200. Yet, before I could accelerate, I had to participate. So, I bought a home and borrowed against the equity in my home to start investing in real estate. When I really got big, I actually closed my IRA down, took the penalty hit, which was quite substantial, and used that cash to invest in my real estate business. Here’s the point: You have to start building some kind of asset base, and the simplest way to do this, based on the tax laws in the United States is to open a Roth IRA and buy your own home. If you get those two things started, you will have a solid asset base. This is how you begin to build the dollar signs to get to the Second X.

STEP 5: ACCELERATE

The fifth step to financial freedom is to accelerate, and there are three primary ways: invest in real estate, invest in the stock market, and invest in your own business.

 Invest in real estate – You should learn to invest in real estate in addition to your personal home. Most people who have higher levels of wealth have invested in real estate. It doesn’t necessarily mean they’re receiving income from their real estate, but it does mean they hold their wealth in real estate.

 For example, when you hear about the ten homes Oprah Winfrey or another wealthy person has around the world, you should understand why they have them. Most of the time, it’s not because they’re some rich person trying to show off all of their wealth. One of the primary reasons they own multiple homes (real estate) is for tax planning.

 Here’s how this works. They set up a real estate business because they’re kicking off so much cash from their business. Then they roll that cash over into real estate because it typically hold its value in comparison to other investments. They use the write-offs on the depreciation of that property to shelter the income they’re collecting. This is brilliant, wealth-building tax planning!

When you’re building to the Second X, you need to invest in real estate to get income that will help you attain financial independence.

Stock Market – The second option is to invest in the stock market. This is my least favorite of the three ways to accelerate your wealth. The most important thing to learn about investing in the stock market is how to position yourself so you don’t lose money.

 Warren Buffett, the sage of Omaha, said the secret to making money is not losing money. Personally, I have lost a lot of money in the stock market, but the good news is that I had the money to lose. Better yet, I still made more than I lost. When I started out, I lost a lot of money, acting before I had knowledge, understanding, and wisdom in the right areas.

 Invest in Your Own Business – The third way to accelerate your wealth is to invest in your own business. You can invest in real estate as well as the stock market without first building your own business. You can still have First X income and take the excess to invest in real estate and/or the stock market. When you properly build a business, that business will actually replace the income from the First X.

Some people are able to still do both. For instance, let’s look at Peyton Manning. He gets paid as a quarterback for the Denver Broncos. That’s his First X income (and it’s a lot more than most of us will ever make with First X). He gets a big contract and makes a big money, but in addition to this he also does commercials for Papa John’s and Best Buy. He also purchased a couple of Papa John’s restaurants. While these things have nothing to do with actually playing football; they have to do with setting up a business to receive advertising income.

It’s possible to go straight from the First X to the Second X and build a business, but you must know what you’re doing. You must have some sort of consistent income in your life. Most of the time, it takes even the most successful business about three years to become profitable. Sometimes it takes a little longer to actually live off the income like you need to on the Second X.

I encourage you to accelerate your income by investing in real estate, the stock market, and business. The primary streams of income from the Second X are rent from real estate, profits from a business, dividends from stocks, interest from bonds and CDs, and royalties from songs, books, etc. The idea is to position yourself to invest and move forward to build wealth.

STEP 6: EMANCIPATE

Once the dollar signs start rolling in and the Second X starts forming, you will find yourself able to emancipate. It’s the awesome point of financial freedom where you can live off your assets. This means you’re free from First X income like your job if you so desire.

Now that I’m emancipated, so to speak, I don’t need to have to a job. However, I love teaching. I love traveling to different parts of the world to work and teach, but the difference is that I no longer need to do these things to earn money. I’m free to do them whether or not they’re profitable, because I’m emancipated. I’ve reached the point where I have the freedom to live off of my assets.

STEP 7: DONATE

The seventh step to financial freedom is to donate. The word donate means you give and invest 100% of your excess money to kingdom purposes and social causes. After achieving the Second X, we need to work toward the Third X. This is where we will be able to give 100% of our excess income to others in our lives. This includes donations, but it can also include investments.

You can actually make an annual return on investing in social causes, which is called “social impact investing.” In social impact investing, you simply reallocate some of your assets to invest in social causes. You don’t do it for the money; you do it because it offers aid and empowerment to the people you’re helping. It empowers them, instead of simply enabling them. This is what I do through my nonprofit, Tricord Global.

Then He spoke a parable to them, saying: The ground of a certain rich man yielded plentifully. And he thought within himself, saying, “What shall I do, since I have no room to store my crops?” So he said, “I will do this: I will pull down my barns and build greater, and there I will store all my crops and my goods. And I will say to my soul, ‘Soul, you have many goods laid up for many years; take your ease; eat, drink, and be merry.’” But God said to him, “Fool! This night your soul will be required of you; then whose will those things be which you have provided?” Then Jesus said, “So is he who lays up treasure for himself, and is not rich toward God.” Luke 12:26-21

The goal of the Third X is making sense of making money to make a difference. It’s the vision of this donate step, and it’s also the vision statement for Wealthbuilders. You position yourself financially, not just so you can build bigger barns, but so you can impact the kingdom!