The 5 Steps to Financial Independence

You’re done with nurse anesthesia school! Oh, thank the Lord Almighty! The grind of graduate school is finally over and you’ve got your first paycheck! Holy schnikes! That’s a huge paycheck. All that time and energy has finally paid off. What are you going to do now? Buy that Tesla 3! What, are you kidding me? Don’t be ridiculous! Sure, buy that Tesla 3 if you’ve left school with absolutely zero debt (and if you’re one of the few who were able to go through nurse anesthesia school without incurring any student loan debt, damn, I am very very jealous of you), but if you’re carrying student loan debt, excuse my language, but what in the **** are you thinking? Don’t be in such a rush to spend all of that hard earned money because you’re paying a lot more than whatever sticker price you’re paying at the current moment (especially if interest is being charged to these purchases).

Now, I’m not advocating that you live like a miser, watch Netflix and eat ramen all day every day until you’ve paid off your debt because that’s just inhumane and quite frankly, unrealistic. However, that’s what travel hacking and credit card churning is for. I will hyperlink this in the near future. Basically, I’ve learned from others how to travel for free using credit card points. But, as usual, I’m digressing.

As a new graduate CRNA, there are 5 steps one should take if he/she wants to be on the path of financial freedom. It takes a little bit of time to plan this all out, but like a good exercise routine, once you put in that initial work and make it a habit, everything after that is minor maintenance and you’ll probably end up enjoying the experience. But for those of you who hate exercise and managing your finances, well, that’s okay too ’cause these are simple steps to follow.

Step 1 – Create a Budget

Before you can begin tackling any of your personal finances, you need to track and monitor your spending habits for at least 3 months. Once you’ve collected 3 months of data on your spending habits (Mint.com is a great site to use), you’ll be able to get a better idea on how to budget because you’ll have a fairly accurate idea on how much spending you do and where that money goes to.

My wife and I’s journey began by making a budget before even looking at our spending. We spent the next 6 months trying to adhere to that budget. By the end of 6 months, we reviewed our spending habits and compared it to the budget that we created. We tailored our budget to meet the needs of our spending habits. Keep in mind that a budget is constantly changing. What I mean by that is when you reassess your spending, you’ll notice certain categories may need to be added, removed, and the budgets associated with those categories may need to be increased or decreased. Either way, you have to be able to reassess your spending habits, ask yourself if the spending is necessity or a want, and make tiny adjustments as needed.

So, your first step to financial independence is by creating a budget for your expenses.


Step 2 – Pay down debt (e.g., credit card)

The second step to financial independence involves organizing all of your debt that DOES NOT include your student loans. This means credit card debt and any outstanding debt you may have with a creditor. Your goal is to treat this as an emergency because the interest rates on these kinds of debt is usually in the low to mid teens. You’re losing out on some major cash (compounded over time) if you just make minimal payments on this kind of debt. I’m going to be blunt about this. Don’t be stupid about your money and just pay this damn debt off. If it’s initially insurmountable, then consider doing a 0% balance transfer with a credit card so that you can 1) minimize the amount of interest you’ll be paying on your principal and 2) you can amortize the principal borrowed over 12-15 months, depending on the credit card you end up doing a balance transfer with. Yes, I know it sounds weird to say pay credit card debt with MORE credit card debt, but the difference is instead of paying interest on minimal monthly payments, you take a 0% balance transfer (pay a 2% balance transaction fee) and can spread the aggregate credit card debt over a larger period of time and not incur any additional interest on your principal.


 

Step 3 – Pay down student loans

My personal belief and I don’t care what kind of loans you have, federal or private, if you don’t have an interest below 3%, you need to refinance and consolidate your student loans. The lower the interest rate on your student loans, the better, because the pressure to pay them off quickly will be decreased. Paying 12% interest on debt is not the same as paying 3% interest on debt especially if inflation increases by, say, 2-3% annually. If you can refinance and consolidate your loans to below 4%, you can get by making the minimum monthly payments and use the rest of your money to save.


 

Step 4 – Contribute to retirement

That savings from step 3 can be used towards contributing to your retirement! At this stage in your career, there is absolutely no reason why you cannot maximize contributions to your retirement account, particularly the pre-tax shelters [e.g., 401(k), 403(b), 457(b)]. At the minimum, you can shell out $18,000 (which is the max contribution for each aforementioned retirement vehicle). Not only will contributing to your retirement decrease your tax bill at the end of the year, but you’ll also effectively be contributing to the financial solvency of your future self…So, if you have money (which you should), DO IT!


Step 5 – Start Saving

Lastly, if you’re able to do steps 1-4 and you still have cash leftover, a high five to you, fine sir or lady. Now you’re on the path of financial fitness. Start saving more. Maybe you need an emergency fund. Maybe you want to buy a house. Either way, start saving cash because a number of different opportunities or challenges may arise in your life and you want to make sure you have the cash to deal with it. Some personal sites say you should say 3-6 months of living expenses as an emergency fund. I have my thoughts about this and will divulge them in a future post.


To recap, the 5 steps to financial freedom are:

  1. Create a budget

  2. Pay down debt (e.g., credit card)

  3. Pay down student loans

  4. Contribute to retirement

  5. Start saving

 

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor or specific legal issues with a lawyer.

 

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