Budget Example of Financial Freedom

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What does financial freedom look like?

Financial Freedom – What Is It?

Financial Freedom is about the liberty to chose without restraint. Since our finances are simply tools for us to use to meet our life’s goals, financial freedom is defined as having the attitude and resources to live abundantly in each stage of life, free of worry, to completely live out the full purpose of one’s life. Many people have heard about the concept of financial freedom, but what does it really look like? I mean, of course I want to be free to do what I want, free to enjoy myself and free to pursue my dreams. But beyond that, what is the big deal? Is it just about having some money?

Financial freedom goes far beyond having a few bucks. Sustainable financial freedom enables us to reach our potential as people. This freedom has five key components. Let’s take a look at those components and how they fit into your life

  1. VISION for how you want to invest your time, talents and money
    • Answer the questions: Why am I here? What am I passionate about? What does my life plan look like? The purpose of this Vision is not to rigidly plan your entire life, but to form a direction and plan of action to focus your efforts. Freedom to pursue one’s passions and goals is worth the effort to define one’s vision. How can you pursue your dreams when you don’t know what they are?
  2. PLAN (budget) that supports your vision and quality of life you want to maintain
    • There’s that dirty word, Budget. Don’t let it throw you. A budget is simply a plan for spending your money that is consistent with the vision you have for your life. If you make a budget and it doesn’t work for you, change it, but make sure it meets a couple criteria:
      • You live within your means: Only spend money you have
      • It includes your savings goals
  3. DEBT-FREE approach to everything we purchase
    • A debt-free approach doesn’t mean we NEVER use debt, but that we use money we have whenever we can and when we use debt, we prioritize the elimination of debt in our budget. A wise man once said: “The debtor is slave to the lender.” There’s no slavery in freedom.
  4. A bias toward SAVING
    • Savings must be a priority in your budget. How much do we need to be saving? Let’s start the conversation at around 15% of our take home pay. Why? Because we need to have three types of savings for future needs: We need an Emergency Fund for when life throws us a curveball. We need savings for Retirement and we need to be saving toward known future expenses, like cars, furniture, kids, etc. Adequate savings allows us freedom to act when we want to.
  5. An ATTITUDE of contentment with where you are, and gratitude for what you have
    • Don’t compare yourself to anyone else, but be content with where you are. Contentment brings peace and peace is a large component of freedom. Gratitude focuses our mind on what we have instead of focusing on what we do not have. Be grateful, always.
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The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

 

Budget Example Of Financial Freedom

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The budget of the financially free can take many forms, but whatever the form, they all have these common traits:

  • They spend less than they have.
  • They account for saving toward goals
  • They eliminate debt

Let’s take a look at a very good actual budget that allows for financial freedom. Note: The budget is shown as a percentage of Net Spendable Income (NSI). NSI is your total income, minus taxes and charitable giving, usually represented on a monthly basis.

Category                              Budgeted $            Includes                                                                         

Housing                                    25% of NSI           Includes rent/mortgage, taxes, insurance, HOA

Utilities                                       5%                        Electricity, water, gas, trash, internet

Autos                                         14%                        Car payment, insurance, gas, repairs

Food                                           12%                       Groceries, toiletries, beauty items, eating out

Insurance                                   2%                        Life insurance

Medical                                       2%                        Medical costs and insurance

Retirement Savings                12%                      401K plus company match of 3%, totaling 15%

Savings for upcoming needs  10%                    Saving for new car, furniture, house repairs

Kid’s college savings                  5%                    529 plan

Entertainment/Clothing           5%                    Clothes, gifts, pets,  misc.

Vacation                                         8%                    Fun in the sun!

Total:                                           100% of NSI

This is a very good budget, with ample savings, (totaling 27% of NSI) and no consumer debt. This budget is sustainable and takes care of the family’s goals, namely:

  • Saving aggressively for retirement
  • Saving for the kids to go to college
  • Saving for new cars, furniture and house repairs
  • Funding for vacations and living life (entertainment, etc)
  • Funding for security: medical insurance and life insurance

Does every budget need to look like this one? Absolutely not. Each budget should reflect the goals and priorities of the person or family. But every budget must make room for savings, must eliminate debt and must never allow expenses to exceed income in order for it to be sustainable. And a  sustainable budget is a large part of the puzzle to live financially free in order to live abundantly in each stage of life, free of worry, and free to live out the full purpose of one’s life.

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The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

2 thoughts on “Budget Example of Financial Freedom

  1. Nice. I have never heard of the term net spendable income (NSI) before. I like it!. This is a great budget, especially for someone that has no consumer debt, like myself. I like how housing is kept under 25%. I think this frees up a lot of money to do other things like save, and enjoy life. With the percentages you allocated, there is more than enough monies to go around and even more to spare. Very cool.

    Liked by 1 person

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