After reading an article called 11 Steps To Financial Freedom in the latest MoneySense magazine, I thought it would be interesting to go through each of these steps one-by-one and share my results on this blog.  Each week I’ll go through one of the 11 steps to financial freedom, with the intention of creating a complete financial plan by the end of the series.

Over the past month I have prioritized my goals, determined my net worth, recorded my cash flow, compared my spending to my goals and set my top three goals.  Now it’s time for step 6: chart a path to your goals.

Develop a Strategy

According to the MoneySense article, once you know where you’re going, you need a plan to get there.  The usual route is to spend less than you earn and invest the rest to help get you where you want to go.

Earlier in this series we identified some pretty aggressive savings goals and now we need to develop a strategy to help ensure our long term goals aren’t just unreachable dreams.  Our top 3 goals were:

  • Trip to Ireland
  • Pay off Mortgage
  • Retire by 55

Action Step #6: Chart A Path To Your Goals

For this step we needed to go back to “Worksheet 6-Your top three goals” and in column 2, note any obstacles to achieving each goal.  Then, in column 3, write down the action steps that you and your spouse have both agreed on to make that goal a reality.  The key is to develop strategies and appropriate time lines to make your goals materialize.

Last week I jumped ahead and noted the obstacles and action steps for each of our top 3 goals, but I didn’t go into specific details.  We still have the following short term priorities to take care of before we can tackle our top 3 goals:

  • Landscaping and Fence – $2,500
  • Student Loan – $3,500
  • New (used) Car – $10,000

The good news is that I’ve already started working on two of these priorities.  One of our neighbors just moved in and is eager to get the fence done because they have a dog.  It turns out that he has access to some cheap lumber (1/4 of the price) to build our fence.  This should save me about $500.  I’ve also used some of our savings to eliminate my wife’s outstanding Alberta student loan ($1,200), leaving only her National student loan to pay off.  I was only paying $50/month towards this loan, so that money can now be added back into our cash flow.

As of August 1st this year we had a monthly cash surplus of $1,900.  Here’s how we plan to allocate our additional funds to look after our short term priorities and achieve our long term goals:

  1. Increase mortgage payments by $500/month – done as of August, 2011 ($1,400)
  2. Pay off $1,200 Alberta student loan – done as of October, 2011 ($1,450)
  3. Save $1,600 to pay off remaining National student loan – $160/month from Nov 2011 to August 2012 ($1,290)
  4. Save $2,000 to pay for fence and landscaping – $285/month from Nov 2011 to May 2012 ($1,005)
  5. Save $10,000 to buy new car – $1,000/month from Nov 2011 to August 2012 ($5)

By September, 2012 we can turn our attention towards saving for our top three goals.  We should now have $1,550/month to work with.  Here’s how we’ll get started:

  1. Increase mortgage payments by another $100/month – starting September, 2012 ($1,450)
  2. Transfer $125/month into a high interest savings account for our trip to Ireland – starting September, 2012 ($1,325)
  3. Transfer $500/month into my tax free savings account – starting September, 2012 ($835)
  4. Transfer $500/month into my wife’s tax free savings account – starting September, 2012 ($335)
  5. Transfer $335/month into my RRSP – starting September, 2012 ($0)

The biggest obstacle that we face is that there are just too many competing priorities as a young family living on a single income.  We’re fortunate that we can live frugally in a fairly inexpensive city and have a healthy cash surplus at the end of each month.  It’s great to be in a position to choose how we want to use that money.

I feel pretty confident that we can achieve our long term goals if we can stick to this plan.  Next week we’ll make sure we’re protected with step 7: review your insurance coverage.


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