We all want to experience financial freedom. You know what that is – being able to spend what you want when you want to – right? Actually, no.
- Financial freedom is all about the freedom of knowing that even if a disaster hits you’re going to be alright.
- It’s knowing how you’re going to pay for that next car when you estimate it’s going to go kerplunk.
- Financial freedom is the peace of mind that allows you to sleep well at night because you know you will be provided for if you’re unexpectedly laid off.
- Financial Freedom is knowing that if your car needs $1,000 worth of repairs and your dryer dies in the same month, you don’t have to bat an eye.
- It’s being able to give $10,000 to a charity organization without worrying about money for your own family because you believe in their cause.
Yea, that’s financial freedom. But how do you reach that all elusive financial freedom? Build a bigger emergency fund? Nope. Learn more about investing? Well, that might help, but financial freedom comes from building good financial habits. So let’s jump into 10 Habits to Build to Achieve Financial Freedom.
Habit 1 – Pay Yourself First.
I know that I’ve mentioned the book The Richest Man in Babylon. The premise is that the richest man in Babylon teaches seven lessons on what made him the richest man and how others can do exactly what he did. It’s actually told in story form, so it’s really a fun read. The whole book took me less than two hours to read.
Now that being said, the first lesson that he teaches is “Pay yourself first.” Every month, you pay yourself 10% of what you brought in. Now, I for our family, we tithe 10 % of what we bring in. Our goal is the next 10% gets split between savings and paying extra on our house. It’s not quite the same thing as paying yourself 10%, but it’s close and we want to be out from under our mortgage as quickly as possible.
But Habit 1 is a perfect segue into habit #2 because if you are paying yourself first, you are building your emergency fund.
Habit 2 – Build Your Emergency Fund
Emergency funds are so important that I dedicated a whole blog post to them! Start your emergency fund off with $1000. This should be enough to get you through most short-term crises. Eventually, you’ll want to up that fund to 3-6 months living expenses.
Habit 3 – Pay off Consumer, Educational, and Medical Debt.
Debt is the BIG thing that is holding most of us back! These are three of the biggest areas in which people get into trouble, sometimes with nothing to show for it. Did you put a beautiful dress on a credit card, but you were so far in the hole that the dress wore out before you paid off your card? Or maybe it wasn’t a dress for you men, but have you done the same thing with a handgun?
I know people say that educational debt is okay because you’ll make more than you spent on it, but you still need to be wary of a price tag that’s going to mean you’re paying off your education for 10-20 years after you complete your degree!
Are you looking for some creative ways to live so that you take on less consumer, educational, and medical debt? Check out these two posts here and here.
Habit 4 – Always start your month with a spending plan.
Yes, this is also known by that terrible word – BUDGET. Most people hate that word. I’ve actually gotten to the point that I don’t hate budgeting. I really do enjoy making sure that our money is properly allocated so that we can do the things that we want to do now while saving (aka setting up sinking funds) for items that we want to buy or vacations that we want to take. This lets me tell our money what we ARE going to do instead of our money dictating to me what we CAN do. It’s a total shift in mindset, and it’s very freeing!
Habit 5 – Always end your month by looking back at your spending plan.
Well, what I said about not hating to do monthly spending plans? I can’t say that here. I HATE looking at where I overspend each month. If there’s overspending in our house, I can guarantee you that it’s not my husband who is overdoing it, it’s me! I admit it. Just like I really am an emotional eater, I can be an emotional spender.
Have you ever heard of The Five Love Languages? My love language is “Giving gifts,” and I LOVE to give gifts to my kids, my husband, and to others around me. It’s hard for me to reign that in. This part of the process is PAINFUL for me!
Habit 6 – Find the category of your biggest financial transgression and cut it by 1/4 or even 1/5.
So when you take a look at you at where you really blew your spending plan – because you will blow it. DON’T try to cut it out all the way or even by 1/2. This really can cause bigger problems! Why? Because you’ll feel deprived! Just try to reign it in. Did you eat out too much last month? Make a plan for HOW you’re going to cut it back by 20%-25%. Did you go to Starbucks twice a week? Maybe you can go once a week for two weeks and twice a week for two weeks. That way you can still go often, but you don’t feel as deprived as if you cut it in half.
Habit 7 – Read 1 financial book a year
Some of my favorite financial books are:
Habit 8 – Split your raise with yourself
If you get a raise, it’s always a cause to celebrate! Pat yourself on the back and go out to dinner ONCE. Then when you or your spouse gets a raise, split the amount of that raise in half. Figure out how much extra you will have from each paycheck and have your employer deposit half of that in a savings account (if you really have a hard time NOT tapping into savings, put that into a second bank). Have him put the rest of your raise with what you would normally make into your monthly checking account. If you don’t see it, you’re less likely to spend it. Then you still get a ‘raise,’ while adding to your savings monthly.
Habit 9 – Buy the best you can afford
Now, this may sound counter-intuitive. Set yourself up for financial freedom by spending MORE money…… Not really. When I say buy the best you can afford, this is what I mean. If your stove goes belly-up on you, and you HAVE to purchase a new one, but you only have $1500 in your emergency fund, never spend more than you have, but buy the best stove that you can purchase while staying under your $1500. A better stove will last you longer than a really cheap one that might only cost you $350. If you can get a really GOOD quality stove (I highly recommend checking Consumer Reports for what constitutes good quality) for $900, and you’re comfortable with spending that much, then buy the better stove.
When we were in the midst of having kids and living on $2800/month for a family of six (while paying for seminary so we graduated without debt), we had no extra money to spare. We would purchase used/refurbished appliances for $200-$300. That was all we could afford. That was the best we could afford.
Habit 10 – Practice contentment
It’s so easy to say, “we’re growing out of this house.” Sometimes you are, I totally get that! But here’s an example of a family of 8 who lives in a 500 square foot house! I’m not saying if they can do it, so can you. What I am saying if they can do it, maybe you could look for creative ways to make that 1500 square foot house work for a family of five. I have a child who really wants her own bedroom. Our new house only has three bedrooms which means that the boys have to share and the girls have to share. It just wasn’t feasible for that child to have their own room. It was a want, not a need.
The same goes for a car. Do you have to buy a new car every five or six years? Could you continue to drive your cars until it would cost you more to fix the car than what the car is worth?
Do you really NEED that new outfit, or do you just WANT that new outfit? Do you NEED that new power tool, or do you just want it?
Bonus Habit 11 – Save this month’s income and live off it next month
Now, this might take some time to set up, but this has been a life saver for my husband and I. We’ve been doing this for near 20 years. When we make money in October, we don’t spend it then. What we make all month long is saved until November. Because of this, I can pay all the bills at once (so nothing gets missed). This also means that we have one more month’s buffer than most people have.
I don’t know about you, but with most people we know, when they make money on Friday, they start spending it as soon as it’s deposited. They will pay the car payment and utilities out of this paycheck. The mortgage comes out of the next paycheck. Groceries are split or paid for on a weekly basis. And they eke out some savings where they can. I can honestly tell you that this one principle has kept us sane and further from financial trouble than we otherwise would have been.
What about you?
Do you have any habits that move you toward financial freedom? Do you disagree with any of the habits I’ve listed here? Are there other financial principles that you believe are helping you along? I’d love to hear! Leave a comment below and share with us all.
Together let’s Love, Learn, Practice, and Overcome
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This has worked for us: we don’t use cash for anything unless we have to. We use our cash back credit card for everything we can, and make sure we can pay off the balance every month.The only things we ever pay intrest on is house or car, which we own free and clear at this point. if there is a larger price point item we need or want, we either wait to save up for it, or get a deal where it can be paid off in 6 months or a year interest free .And yes, pay yourself first, and put that money away, you are going to need it sometime for something. My husband and I were both retired before age 60 and living well with no financial worries.
Sounds like you know exactly what you’re doing, Kathy! Congrats on having your house PAID OFF!! Wahoo! That is so awesome! That’s the only thing we’re working on and we have a plan to get it done as quickly as possible.