Over the last month we’ve talked about the first two steps to getting to be financially independent, and to have a chance to live like nobody else can afford to do. But, in order to get there, you have to do some things others won’t do.

Denial IS a financial strategy. It’s just not one that works. And the sooner you have that “ah ha” moment, or the “that’s it!” I’ve had it moment, the sooner you can get started to building wealth, instead of sending most of your pay out the door the day after you’ve earned it.

Step one: Save one week of net pay. That’s your emergency savings. It’s not much, but 70% of people don’t have that. If your fridge dies, or the car needs $500 repairs, you now have some money. Plan B for most of the world is to just borrow the money. And that hasn’t worked so far, has it?

Step two: List your debts smallest to largest and pay off the smallest one with every extra dollar you have. It’s the one that’ll be paid off the fastest and take just a month or two. While doing that, make minimum payments on all the others. Then, roll that money into the 2nd smallest and pay it off. Then attack the 3rd smallest, and so on. On average it’ll take a year or two, and you will be totally debt free except your mortgage.

Step three: Now you need a real emergency fund of three months of your net income. On average, most people are paying debts of $1,000 or more. The car payment, credit cards, etc. That huge amount of money isn’t going to pay bills now. It’s all yours! THAT alone puts you into some pretty elite company. So, saving three months of household income won’t take that long.

Step four: Start, or re-start, your retirement savings. Whether it’s an RRSP or the Tax Free Savings Account depends on your tax bracket. But you now need to save between 10 and 15% of your income for retirement. The amount depends on your age. If you’re in your 30s, 10% will do. If you’re over 40, it has to 15% to catch up.

Step five: Start a savings plan for university, if you have kids. Yes, this is AFTER you start your retirement savings. There is only ONE way to save for retirement, and that’s YOU saving YOUR money. But there are a number of ways to pay for university. It may be a part time job, scholarships, grants, savings, cash-flowing it every year, etc. It has to be in this order.

Step six: Pay off your home. You’re debt free, your retirement savings are happening, and you’re saving for your son or daughter’s education. The last step is to pay off your house. With no debts, on average, that takes people seven years. Every dollar extra goes towards the principal balance.

Step seven: You are totally debt free and don’t owe anyone in the world. Now you can live the live that others can only dream about. You can live the live that you USED to live with borrowed money and a phony house of cards. This time, it’s real. And it’ll put you into a group of maybe 20% of Canadians that are truly wealthy.

Is it worth it? You bet. Will you do it? I don’t know. But I do know that debt is not your friend and you can’t borrow your way to wealth.