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.
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.
If you agree, would you share the message? Let’s work together to bring peace to the lives of others.
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Absolutely awesome resources – as always – and you broke it all down into very manageable steps – great, helpful post Holly.
Thank you, Ann.
Thanks for the renewed push Holly! It is definitely a commitment and sacrifice to work on becoming debt free. I have slacked in the past year or two. I would like to get back to hardcore budgeting and debt payoff. I envy your position right now. My problem is that I manage the money and have a hard time saying no. Maybe you can give some tips on how you and Jeremy handle/ed situations regarding one’s strongly desired purchases that the other doesn’t agree are necessary. How did both manage those discussions? How do you say no and when do you give in?
I wrote you the most amazing reply and then – CRASH! I’ll try to remember …
Thank you so much for the comment, Jamie. I’m happy to hear that it lit a fire in you.
You’re right, it is a sacrifice, but it’s worth it. Everything that we gave up has changed our lives for the better. Not just our finances, but our health, relationship, careers, etc.
Thank you for asking such an excellent question. I’ve actually had it on my list of post ideas since our big bike trainer disagreement last fall. How to Stay Married When a Saver Marries a Spender – I should write that one soon!
For the record, I do not have a hard time saying no. 😉
First and foremost, we did this thing together. We have the same goals and values. At the end of the day, we want the same things long term. That’s important. All of the things I lay out in my blog are things that Jer and I do together.
We also realize the value of the other’s tendencies and appreciate the balance they bring to the relationship. I could spend a whole lot less than we do right now. And Jer could spend a whole lot more. We compliment and balance each other, even though we aren’t always happy about it.
Both the budget and automation are very important here. We decide what we want to do with our money before hand, and I make it happen. With the car allowance, I take out any expenses and deposit the rest in its own account. With bonuses, I take out a bit to enjoy, and the rest gets put away. For our regular monthly income, I set up automatic transfers for each pay period. I make anything extra difficult to access. If there’s not a predetermined plan for it, it goes away. There’s virtually nothing that can pop up that can’t wait until next month.
The final piece is compromise, which usually includes a disagreement or two. 😉 Jer loves cycling stuff and has really expensive taste. It drives me crazy sometimes. Since it’s our hobby/health care plan/quality couple time … I budget for it monthly. Still, we never agree how much should be spent on each item. For example, Jer wanted a new bike trainer last fall. When I asked how much he thought it would cost, he said he could get one on Craigslist for $350. When the time came, he informed me that the one he really wanted was $1200. Obviously, I was not okay with that. I mean, most people could buy a couple decent bikes for that price. We ended up agreeing on one in the middle. Jer still brings up the expensive one whenever we have to switch out tires, but that’s life. 😀
When it comes to spending, I’m pretty notorious for never paying full price. REI’s sales are like holidays for us. We keep a running list of the things we need and pick them up when we can get a good deal. Setting the precedent helps deter impulse purchases. Jer is patiently waiting for their Anniversary Sale next month.
Thank you so much for asking that question. I truly appreciate when people speak up because then I can clearly see where I should focus my efforts.
I hope this helped answer your question. Please let me know if you have further questions. I’m sure a lot of people have wondered the same thing.
Holly, I’m impressed with you tracking methods. I’m sharing this with my adult children. Blessings!
Thank you so much, Debbie! It’s been a life changing practice for my husband and me. We both wish we had started sooner.