Your First Step to Financial Freedom

Personal finance can be a very personal and emotional topic. Even though it’s one of my favorites, I shy away from it because it can cause visceral reactions. Of the hundreds of blog posts and newsletters I’ve written, it’s the only topic in which I’ve been blocked and unsubscribed.

In a recent survey, my readers said they want more on this topic. At risk of decreasing my overall reach, I’m going to start sharing more financial resources. First, because my best readers are asking for it. And second, because I’m passionate about the cause.

Personal finance statistics in America are far from stellar.

• The US National Debt is near $20 Trillion and counting.
• Nearly two-thirds of Americans don’t have enough savings to cover a small emergency.
• One-third of American adults report having ZERO dollars saved for retirement.
• The average US household with credit card debt has balances totaling close to $17,000.

These numbers are dismal but they’re not the end of the story.

Your Personal Finances Don’t Define You

Where ever you are on the personal finance spectrum, it is not a reflection of who you are as a person. Our culture is built on consumerism and at one time or another, all of us have been sold a lie. Be honest with yourself about where you are, but don’t let it define you.

You Don’t Have to Live This Way

If you’ve been following the news, we’ve been living in dire times as long as I can remember. Whether it’s the economy, employment, the housing market, or interest rates, something is always about to collapse.

The great news is that you have a choice. You can choose to live in fear of the next horrible crash. Or you can choose to take accountability for your family’s financial future. It doesn’t matter where you live, how much you make, or your level of education – you don’t have to live this way.

It’s Never Too Late to Change

The moment you decide to change your future and take action, things will come together more quickly than you plan. If you commit to the long-term reward and remain diligent, you’ll find financial freedom before you know it.

If you commit long-term and remain diligent, you’ll find financial freedom in no time. Click To Tweet

I’m not saying these things because I read some personal finance books and watched a Suze Orman special on PBS. I’m saying this because my husband Jer, and I, have actually lived it.

We grew up just like everyone else, with very little understanding of how to manage our finances and build wealth.  Then one day we decided that we didn’t want to live like that. In that moment, we changed our lives forever.

It feels like it was ages ago, but we only began thinking differently about these things in 2010. In 2011 we created a plan and in 2014 we were financially free (two and a half years ahead of schedule).

Today I’m going back to 2010 to share how we began.

Building wealth is a simple concept - spend less than you make. Click To Tweet

Building wealth is a simple concept – spend less than you make. While the concept is simple, it’s not always easy to do.

The first step to spending less than you make is to understand where your money is going. This step is simple, but it’s going to require that you are diligent and honest with yourself. To do that, you will need to track every dollar you spend over the next 30 days.

I use an app called Toshl along with an Excel grid. I will always use Excel because I love the data I’ve compiled over the last six years. If you’re not an Excel addict, I would suggest using a more robust app. Here are some suggestions.

• Every Dollar
• LearnVest
• Mint
• Mveloples
• Wally

Tracking your spending will give you a good idea of where your money is going but it won’t be the full picture. We all have bills that fluctuate throughout the year like gas, electricity, and water. We also have bills that are paid on an annual or biannual basis, such as homeowners insurance, auto insurance, and property taxes.

Identify which of your bills fall into these categories. Then go through your bank statement and add up the annual total for each category. You can then divide it by twelve to get your monthly average.

I like my data very detailed. My husband, Jer, prefers to keep it simple. Think about what you will be able to maintain long-term. If you’re not into details, keep it simple, or you won’t do it. You can change your system at any time. Just do what works best for you.

Here are some categories you might want to track

• Savings
  • Retirement
  • Health Care
  • Emergency Fund
  • Car Fund
  • Vacation Fund
• Mortgage / Rent
• Charitable Giving
• Utilities
  • Water
  • Trash
  • Gas
  • Electricity
  • Internet
  • Phones
  • Television
  • Internet Security/Online Backup
• Household
  • Groceries
  • Beverages
  • Health and Beauty
  • Household and Cleaning Products
  • Memberships
• Personal Wellness
  • Hair Cuts
  • Clothing
  • Gym Memberships
• Taxes
  • Property Taxes
  • Federal Taxes
  • State Taxes
  • Tax Preparation
• Insurance
  • Homeowners
  • Life Insurance
  • Health Care
  • Personal Articles
• Home Maintenance
  • Home Improvement
  • Repair
  • Gardening and Landscaping
• Transportation
  • Car Payments
  • Auto Insurance
  • Gas
  • Registration
  • Repairs
  • Parking
  • Public Transportation
• Entertainment
  • Dining Out
  • Movies and Events
  • Travel
  • Hobbies and Equipment
• Education
  • Classes
  • Books
  • Seminars
• Work Expenses
  • Uniforms
  • Fees and Dues
  • Day Care
• Gifts
• Other

After thirty days, take time to analyze your data. Consider the categories you tracked as well as the non-recurring expenses we discussed above. Some apps, like Mint, will do the heavy lifting for you.

Once you discover where your money is going, you’ll have a renewed sense of power. For example, a friend of mine discovered that he was spending $1000 per month on restaurants. That was a nice chunk of money he was able to recover and use to build up his business.

Wants VS Needs

As you look at each category, decide if it’s a want or a need. It seems that each person has a different opinion of this. My husband insists that cycling socks are a need. I’m standing firm on my opinion that they are a want.

For the purpose of this exercise, we’ll define needs as expenses that are necessary for your survival. Wants are nice to have, but you can get by without them.

In the categories you identified as needs, ask yourself which of these expenses can be slashed.

• Can you shop for insurance and cut your homeowners, health care, and auto insurance costs?
• Could you call your cable, internet, and wireless phone providers to negotiate better rates?
• Would you be willing to sell that car you have payments on and trade it for a bike and a bus pass?

There’s a lot that can be done here. Leave no stone unturned.

Now for your wants. If you’re like most people, you’ll find all sorts of extra money here. When we were paying off our mortgage, we didn’t buy anything new. Restaurants and travel were a rare treat. We funneled everything toward our debt.

Keep in mind that this isn’t forever. It only took us two and a half years to pay off our mortgage. We were willing to give up (almost) everything to get it done fast! Ask yourself what you are willing to give up now so that you can enjoy peace and freedom later?

Ask yourself what you are willing to give up now so that you can enjoy peace and freedom later? Click To Tweet

The other trick to analyzing your wants is to think about which categories truly bring value to your life. Be okay with spending in those areas and learn to say no to the others.

My husband and I most value our health, traveling, and cycling. I could care less about going out and wearing fancy clothes. We don’t have television service but buy tons of books. We’ve learned that financial freedom feels better than any thing we could have spent our money on.

I’ll be honest. This is work. There are apps and services that will make it easier for you. But you’ll need to find the desire and discipline to keep going. Before you begin, think about why you’re doing this.

• Are you sick and tired of wondering if you’ll have enough to cover your bills each month?
• Are you worried that one more money fight with your spouse could end it all?
• Are you desperate to show your children a better way so that they don’t have to struggle like you did?

If this is going to work, you will need to have a good reason to keep going.

If this is going to work, you will need to have a good reason to keep going. Click To Tweet

Once you begin your journey to financial freedom, it will go by quickly. You’ll probably even learn to love the lifestyle changes you make.

At the end of our lives, I believe that the things that matter most are the little things. Nothing you could buy will feel as good as financial freedom will feel in the long-term.

Ready to change your financial future?

Check out these posts to learn everything you need to know to go from surviving to thriving.

Step One – Figure Out Where Your Money Is Going
Step Two – Creating a Budget That Works For You
Step Three – Saving For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieving Your Goals As A Couple

Are you willing to take one small step and track your spending over the next 30 days?
If so, comment below.

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