Another (Different) Budget Example Of What Financial Freedom Looks Like!

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Back in May 2016, I published a blog post called: “Budget Example Of Financial Freedom” that looked at one couple’s budget and the freedom and options that resulted by eliminating debt, having a balanced budget and having savings that covered an emergency fund, retirement and savings for future purchases. This blog post sparked a number of discussions around one main topic: Is there ONLY one way to get to financial freedom?

The answer is NO, there are many ways to get to financial freedom, BUT all paths to financial freedom are built on the same foundation:

  • They have clear, shared goals
  • They spend less than they have.
  • They account for saving toward their goals
  • They eliminate debt and other non-essential expenditures to reach their goals

This blog post looks at a different couple who came to financial freedom in a different way from the couple I wrote about in May. But before we go any further, let’s talk about what financial freedom really is.

Financial Freedom – What Is It?

Financial freedom is defined as having the attitude and resources to live abundantly in each stage of life, free of worry, anxiety or money concerns, to completely live out the full vision and goals of one’s life. Many people have heard about the concept of financial freedom, but what does it really look like?

Financial freedom goes far beyond having a few bucks.  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
    • A budget is simply a plan for spending your money that is consistent with the vision you have for your life. It’s making a plan for using your money instead of wondering later on where it all went. Good budget meets a couple criteria:
      • You live within your means: Only spend money you have
      • It includes savings for your 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.

Budget Example Of Financial Freedom

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Let’s take a look at a very good actual budget that allows for financial freedom. The difference between this budget, and the one I wrote about in May, is that this budget not only eliminated non-essential spending, but also included taking on side jobs to increase income in order to experience financial freedom.

On the income side, this husband and wife couple wanted to have more room in their budget for their dreams of traveling and experiencing foreign cultures. So they both decided to add small side income streams to give them some breathing room. He started some multi-level marketing for a health products company that comfortably brought in an extra $500/month and had the possibility of being a passive income stream even when he was traveling. She started a dog walking business that added $200/month. Combined they added $700/month of income to their budget, agreeing to save at least $500/month, or $6,000/year to go towards their dream: international travel.

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On the expense side of their budget, the couple had a real breakthrough. They realized they spent money on things just because they always had, or just because their friends did too. Realizing that international travel was their passion but was never funded in their previous budgets, they put all of their expenditures through one quick thought process: Does this cost we incur add to our lives as much as foreign travel will? If the answer was yes, they kept it. But if the answer was no, they cut it, knowing they could add it back in later if their quality of life suffered. This is what they decided to do:

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, cell

Autos                                            8%                       No car payments, insurance, gas, repairs

Food                                            14%                       Groceries, toiletries, beauty items, eating out

Insurance                                   0%                        Medical and life insurance through employers

Medical                                       1%                        Prescriptions

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

Savings for upcoming needs  10%                    Saving for new (used) car, furniture, etc

Travel budget                                15%                    At least two international trips a year

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

Misc                                                 5%                    Cash, Christmas, laundry, beauty, etc

Total:                                           100% of NSI

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

  • Saving aggressively for retirement
  • Saving for their dream: international travel
  • Balanced budget: Spending less than they have each month to fund savings
  • Ample (6 months of expenses) emergency fund – not shown in budget
  • No car or consumer debt! They determined it was better to drive an old car than a new one with a car loan on it

To Each Their Own…Budget

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Each budget should reflect the goals and priorities of that particular person or family. In this case, they were willing to do extra work (to add additional income sources) and do without a bunch of things (cable TV, new cars and meager eating out, clothing and entertainment budgets). 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.

After one year of living on this budget, this couple made a couple modifications, but they were sure they made the right decision to add some income and omit some expenses in order to fulfill their dreams of travel. As such, they didn’t view their budget cuts as sacrifices but as blessings for them to experience their dreams and live financially free!

Do you have a financial freedom story to share? I’d love to hear it!

Dave Ramsey’s best selling book The Total Money Makeover is a great book to help guide you to financial freedom. Click the image and SAVE!

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

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