6 STEPS TO FINANCIAL FREEDOM

Hey friends! This post has been a long time coming and I’m so excited to share it with you today. As I’ve been sharing my tips and tricks for traveling on a budget, it felt right to take it a step further and explain how Tim and I look at money. Especially since our financial outlook has improved drastically over the last three years and has laid the foundation for our lifestyle! Today I’ll be sharing my 6 steps to financial freedom. 

Just to be clear, I am not a financial expert (by any means)! I simply want to share my personal experiences with you in hopes that you will be able to improve your relationship with money and experience the same financial freedom. I want to walk you through our money philosophy in six steps. My hope is that this post will help to shed some light on how Tim and I afford to travel, and how you can too!

Now where to start….. I feel like for any of this to make sense I have to rewind about three years to when Tim and I got married. We were so blessed to graduate college without any school debt, but had just planned our wedding and had the credit card debt to prove it. I listened to Total Money Makeover by Dave Ramsey on Audible during a road trip and it was the start of a huge mindset shift for me when it came to money. I took so many notes on my phone and came back to Tim ready to implement them! We started with his seven baby steps (really four because we don’t have a house or kids yet).

• Step 1: Save $1,000 cash as a starter emergency fund
• Step 2: Start the debt snowball
• Step 3: Finish the emergency fund to cover 3-6 months expenses
• Step 4: Invest 15% of your before-tax gross income for retirement
• Step 5: Start a college savings fund for your children
• Step 6: Pay off the house
• Step 7: Build wealth

These steps were critical to Tim and I getting our finances in order. We put away $1,000 as a starting emergency fund while we began paying off our debt. With stricter accountability on our spending, we began to pay off our credit cards. Then, just as he suggests, we saved an emergency fund to cover 3- 6 months of our expenses, and finally started our retirement savings. A couple of years into our marriage we felt great, and that was just the beginning. Next, we had to figure out how to handle our money each month and not end up back in the same place.

Over time that’s how the six steps of our financial philosophy began to take shape. . .

#1 GET YOUR PRIORITIES IN ORDER

The first and most important, step to handling your money well is getting your priorities in order! This may seem like a no brainer, but I am talking about a serious deep dive like you’ve probably never done before. Without setting priorities for yourself, your priorities will begin to be defined by the priorities of those around you. Let me give you an example:

Culturally it’s the norm to have the latest smartphone on the market. The cycle is to get a phone and upgrade it about a year later when the newest model comes out. I could even say many would think that’s what you’re “supposed” to do, however truthfully that is a habit informing your priorities. What you really should be asking yourself is what is most important to you in life? Is the latest technology truly the most important to you? Or are your aspirations to travel? Are you a family-oriented person? Do you love organic food? Home decor? Clothes? Olive oil imported from Italy? You name it! For each of us, our priorities are going to be different and that’s what makes us who we are. But if you never take the time to sit down and really think about your priorities, not only right at this moment but also for the next month, year, and ten years, then you are allowing the priorities of others to influence you. In the end, you will feel defeated and have a watered-down mix of all of those categories.

It’s so easy to compare yourself to the person next to you who gets her hair done every week or drives a new car. But when you have your priorities clear and find yourself eating an amazing bowl of pasta on the balcony of a hotel in Italy, you’ll feel differently! Funny how that works huh? If there is one thing I can encourage you in today it’s to be true to who you are! Take an hour or two to sit down (if you’re married pull your husband in) and really think about what your priorities are. Challenge each other to really determine if what you are listing out is actually YOUR priority or just the imprint of someone else’s lifestyle. You will feel relieved when you stop living someone else’s life and begin living your own.

#2 SET A BUDGET

Next up it’s time to create your budget (or revisit the one you already have)! If budgeting stresses you out, rest assured Tim and I have tested out many ways of creating a budget and it’s something that will grow with you. When we first tackled the baby steps of Dave Ramsey’s program we documented each of our receipts in a simple excel sheet. After we started to get the hang of our budget and got our debt under control, we started to look for budgeting software that allowed us to track our purchases and goals more closely. We started that journey using Mint, and have since upgraded to a monthly subscription called You Need a Budget and we absolutely love it. YNAB added another layer onto the way we look at our money as we began implementing their four rules:

1. Give Every Dollar a Job: Now when we make our budget we allot a category to each and every penny. If that sounds exhausting, it is! But both of us agree it’s been so worth it the time. We used to have a category in our budget called “Flex” which was basically just an excuse to spend money on things we wanted at the moment!
2. Embrace Your True Expenses: In the past, we would put what we know is going to happen in the budget and forget to account for the less frequent expenses that come up like car repairs, doctor visits, birthday gifts for friends, etc. With YNAB, there is a separate area of the budget for these. We estimated our total amount for the year in each category and then broke them down so we are saving towards them each month. This way when those expenses pop up, we are prepared and don’t have to take money out of our emergency fund to cover them. This is such a huge stress relief! The expenses that would typically be a surprise are now just like everyday spending and there is nothing to worry about.
3. Roll With the Punches: This is probably my favorite of their rules! Life happens and things come up. The key is to adjust your budget in the moment and take the money you just overspent from another category so your entire budget stays on track. If I go slightly over my grocery budget for the week, it’s no big deal. I can just come back to the budget and move that money from another category.
4. Age Your Money: So many of us live paycheck to paycheck in the sense that we wait for our latest check to hit our accounts so we can pay for all the things that are due later that week or month. Although this may seem fine, it causes you to think about those bills constantly. Instead of living paycheck to paycheck, YNAB suggests aging your money for as long as possible. This means only spending money that is 30 or more days old. Its a goal that may take a couple of months to achieve but when you get to the point where your current income is sitting in your account to pay for next month’s expenses, you start to feel completely different about your money.

That’s a quick overview of YNAB’s methodology. I will stop there to focus on this post, but if you guys want to know more, let me know in the comments below. I would be happy to share more details. Until then check out the YNAB website for more information on how to implement their rules into your budget! No matter what program you use, make sure your budget allows for every dollar you make and is something you can stick to throughout the month.

#3 PRIORITIZE AGAIN!

So now that you have your priorities listed out and you have started to set up your budget, you may feel disappointed. On my first pass of prioritization, I just ended up listing out all of the things I want like getting my nails done once a month, taking a month-long trip to Thailand, eating out twice a week, etc. Once you put these things into a budgeting application like Mint or YNAB, you will likely see you have some unrealistic goals like I did. In mint, I added the amount I was saving towards a vacation and it told me I either needed to save three times as much per month or push my date back by 1-2 years! Now that’s a bummer.

But be encouraged, that’s why we prioritize again! This time keep your budget in mind to ground your goals in reality. Which things may have to shift in terms of a timeline? Which maybe aren’t as much of a priority as you originally thought? When Tim and I went through this process I found myself deciding between traveling, saving for a downpayment on a house, having a monthly allowance, etc. Getting to a good place financially comes with its sacrifices! It’s unrealistic to expect that you can have everything you want at the moment and still meet your long term savings goals.

This level of prioritizing for us is really a time to pray and seek the Lord for His direction in our finances. Recently I have been praying for the Lord to teach me contentment and to make clear which desires are from Him and which ones aren’t. So many people tell Tim and me that we are “world travelers”. And sure, that’s great, but it misses the point. What they are implying is “I have no idea how you two can afford to travel for weeks or even months out of the year”. That is the evidence of our daily sacrifices!

The thing is, Tim and I have gotten very clear on our priorities and over a year ago we decided that traveling was our #1 priority until we have kids. That means we have to align our entire budget with that goal. We both chose to keep using our “outdated” cell phones and use a service provider that is a fraction of the cost. We have driven our same cars since before we met, and plan to drive them as long as possible. We have learned to do most of our car repairs ourselves (thanks to some smart friends who taught us!). We spend the same amount of money on rent as we did when we made 1/3 of the income we make now. You get the point- in every aspect of our spending, we look for ways to reduce costs so we can shift that money to our travel savings.

So what is that priority for you? What things do you want to work towards? It’s not going to be an overnight thing, but small sacrifices add up over time! If you’re looking at your budget and you just can’t meet the goals you really want to reach in 1-5 years, another great thing is to consider small ways to increase your income. This may seem obvious but do you have things around your house that you aren’t using? Sell them on Craigslist or Facebook! Find ways to monetize your skills. At the end of the day, if the money in your account doesn’t match your priorities one of the two has to change.

#4 ONLY SPEND MONEY YOU HAVE

That leads us to the next point: don’t spend money you don’t have! It is so easy in our society to get caught up in the latest and greatest. It can be difficult to ensure the priorities you are putting money towards are indeed YOUR priorities and guard those priorities every day from the trap of comparison and envy. If you aren’t careful, you will end up in a downward spiral where you are spending money you don’t have.

Dave Ramsey’s program suggests using cash for your spending, which is worth considering if you struggle with this.

#5 UNDERSTAND THE COST OF PURCHASES

Without a budget, you’re simply deciding whether to buy or not to buy. When you have your money budgeted out completely, it provides a clear picture of the opportunity cost for the purchases you make and you know that spending $5 at Target means $5 less in the travel budget. Sometimes you will decide the cost is worth it- you know those days when you just have to have that trinket from the $3 bin at the front of Target? Ha! We all have those. Trust me, I’m not saying the goal is to never spend money on things you enjoy. Moderation is absolutely key! Remember YNAB’s rule #3? You have to roll with the punches and adjust your budget as you go. Just make sure you are looking at your budget frequently enough to weigh the costs of each purchase.

#6 REVISIT YOUR BUDGET AND PRIORITIES OFTEN

Last but not least, make sure you build in checkpoints every few months to revisit your priorities and update your budget. When we first made our budget after getting married, our top priorities were getting out of debt and starting our new life together. Over time things around us started changing. Some of our close friends purchased homes and had children and for a while, I struggled with contentment. Seeing those around me take big life steps made me really think about the timeline for those things in my own life. At that time we weren’t saving any money towards a downpayment on a house. But things change! More importantly, people change! Give yourself permission to grow and be prepared to shift your priorities and budget to match.

Seeing our friends purchasing homes made me stop and really prayerfully consider where I was and what I wanted. In the beginning, I felt this pressure to keep up with the Joneses and be “in the same place” which was exhausting and threatened to throw our priorities out of whack. I could have spent money we don’t have, or worse, allowed the priorities of other people to influence my own. Eventually, I realized that my priority wasn’t to buy a house now but to save up to purchase a home in the next few years. Comparison is such a common pitfall— let’s be honest we all struggle with it— but we have to learn to feel those feelings of comparison into a process of self-reflection to keep our priorities in order. It’s a wonderful thing to be flexible and learn to use that spark of jealousy for good!

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So that was a long one! I’m sure there is a lot to digest and I really hope each of the tips and tricks included in this post helps you to reach the point of financial freedom. One in which you are being wise with your money, planning for the future, but also open to the ways that God could change your plans. (Proverbs 16:9- “A man’s heart plans his way, but the Lord directs his steps.”)

If you have any questions related to finances and budgeting, please let me know in the comments below! This is a topic I am super passionate about and would love to help in any way I can.

Thanks for reading and happy budgeting!