Financial freedom is a goal that we all have. I have been a financial advisor for many years. And over the years I have worked with literally thousands of people in helping them to become financially free. I know what works and what doesn't work. Here's what works...

1. Get out of debt and stay out of debt

   It seems like everybody should know this one by now. But since in the U.S. the percentage of household debt to household assets is the highest in history (and setting records every month), I guess the message is just not getting through to people. When you're in debt you have your money working against you. That's the opposite of what you want to do to become financially free. Being is debt is a loser's game. So stop playing it. Get out of debt and stay out.

2. Use the envelope budgeting system

   Back in the old days people, at the beginning of each month, people would put their cash into envelopes labeled "food," "transportation," "telephone," etc. And then during the month they would just take money out of the envelope for that particular expense. When the money was gone from the envelope that was it for that month. They couldn't spend any more that month on that item.

   It's called the envelope budgeting system. And it's the best budgeting system ever developed. Now there are sophisticated electronic versions of the envelope budgeting system designed for the way we spend money today. Make sure you use one of them.

3. Save for 3-6 months of emergency expenses

   You should have an emergency fund for real emergencies -- unanticipated medical expenses, temporary layoffs, unexpected automobile expenses, etc. You don't dip into this fund to buy a boat. It's only for true emergencies. It helps keep you out of debt.

4. Open a Roth Ira account

   A Roth IRA is a no-brainer. Not only does your money grow tax-free, it's tax-free when you withdraw it. You will have tax-free investments for the rest of your life.

   You're eligible for a Roth IRA if you're a single person with an adjusted gross income below $110,000 (subject to phase-out starting at $95,000), a married person filing jointly with an adjusted gross income below $160,000 (subject to phase-out starting at $150,000), or a married person filing separately with an adjusted gross income below $10,000 (subject to phase-out starting at zero).

   For 2005, the contribution limit to a Roth IRA is $4,000 if you're under age 50 and $4,500 if you're 50 over. However, there are proposals before Congress to raise that limitation or remove the limitation altogether. One of them will pass because it's in the government's best interest for you to save money. After all, social security is on the road to insolvency.

5. Pay off your mortgage

   I know all the arguments against paying off a mortgage -- tax deductions, possibility of earning more on savings that your mortgage interest rate, etc. Forget it. Pay it off, and pay it off as quickly as you can.

   Look at it this way. If you have a conventional 30-year mortgage, you will end up paying triple what you paid for the house. In other words, two thirds of what you pay on your mortgage just goes for interest. You're not making yourself rich, you're making the bank rich. By all means buy a house and have a mortgage. But pay it off early.

That's it. If you do the above five things, you're not likely to have a serious financial problem for the rest of your life. And, most importantly, you'll be financially free.

Larry Holmes

Larry Holmes is a financial advisor, speaker, and trainer. He has presented over 1200 seminars and keynote addresses on various financial topics throughout the United States and other parts of the English-speaking world.