Money, Motley Fool and the Cost of Christmas

Silly title, I know. But the financial advisory firm, Motley Fool, reported that the average American household spent about $929 on Christmas presents last year. Here. There’s no reason to believe we won’t spend even more this year given the economy and the American people’s confidence in it. Then I got to thinking…
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We are just about one quarter of a year, 13 weeks, away from Christmas. It made me think about smart ways to steward our money so that we can fulfill your Christmas shopping desires without going into debt or breaking the bank.
Then I thought that it has been a while since we discussed together God’s plan for each of us to live in financial freedom so that we are able, and free, to worship Him!
Galatians 5:1 “It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery.”
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Here are some simple ways to experience financial freedom, including saving money for Christmas presents, if you haven’t already started:
1. Put aside $72/week, starting with tomorrow’s paycheck, to pay for Christmas
2. While your saving anyway, increase your savings to $120/week and put aside $30/week towards your emergency fund and $20/wk towards your 401K plan, why?
a. your Christmas presents will be paid for by the time Christmas arrives
b. you want to have a readily available emergency fund for life’s little bumps…sometimes expensive bumps (this is called “sleep well at night money”)
c. most companies have a matching 401K plan where you get free money just for participating in the plan…who doesn’t want/need free money?
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3. Another way to save money for Christmas is to cut back expenses. Now is a great time to see if you are getting the value for your money on:
a. subscriptions (software, magazines, wine of the month club, etc)
b. gym memberships
c. phone apps and reoccurring monthly phone expenses
d. everything Amazon
e. cable and internet…are you taking advantage of all the features (and costs)?
Maybe you can save some money by cutting out things you are not getting the value from.
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Make every effort not to go into debt to afford a merry Christmas. God said, through King Solomon: The rich rule over the poor, and the borrower is slave to the lender.
Don’t become a slave to debt. Live financially free to love and serve the Lord!
 
Psalm 119:45 “I will walk about in freedom, for I have sought out your precepts.
Financial freedom (and a debt free Christmas) is not easy…but worth it!

What Do Aging Athletes And Financial Independence Have In Common?

I am passionate about sports and I have been that way for as long as I can remember. More so playing them than watching them but nevertheless, passionate. It was football, baseball and basketball in high school. Then, football and baseball in college. Followed by softball, basketball, tennis, cross-fit and competitive running thereafter. And all the while, I have lifted weights and worked out as a way of life. I love it. It makes me fit, I feel good and it’s cheaper than a psychiatrist when it comes to working out your daily problems! But over time, or more specifically, advancing in age, has a way of catching up to you when it comes to physical performance!

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I remember playing sports in my twenties and it was so easy to perform: Stretching the muscles was easy, as was gaining strength and endurance. If you got a little bit out of shape, you were able to get it back really fast. It wasn’t until I turned 34 that I realized my first reduction in athletic ability. I lost a step. I was moderately fast and running the bases while playing softball I was thrown out going from first to third on a base hit. For the first time ever!  This was my first dose of reality that athletic ability diminishes with time.

Then, I went into my forties. Now I was introduced to regular soreness after working out, coupled with a longer time period to fully recover from the workout. What used to take 24 hours to recover now took at least 48 hours. In addition, it took considerably longer to get in shape. At a twenty something, it felt like three weeks of solid work would produce a great fitness level. But by forty something, it took every bit of eight or nine weeks to feel really fit and even then, I wasn’t sure if I had reached the highest level of fitness. The other side of it was also true: As a forty something, it felt like six or seven days of not working out resulted in losing every bit of fitness and you had to start over again from the bottom of the fitness ladder!

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Then I reached my fifties…and a further reduction in athletic ability, with more aches and pains, and longer recoveries. It was in my fifties that I had to fully accept my physical limitations as an athlete. I could no longer deny that past performance levels were long gone and unreachable.

What Do Athletics Have To Do With Financial Independence?

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At this point, you might be asking, what does athletic ability have to do with financial independence? And I would understand if you did. But follow me here for just a moment. Because the lessons learned as I have aged as an athlete are directly applicable to the process of obtaining and maintaining financial independence. How, you might say?

First, It’s About Time

As an aging athlete, it takes time to get ready to perform. Much more time than it used to as a younger athlete. You need to take the time to fuel your body right before the workout. You also need to stretch and stretch a lot. In other words, you need to be patient  and prepare correctly before you can really perform.

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The same is true with the pursuit of financial independence. It is over time that one can develop wealth. It usually doesn’t happen overnight, and, expectations to the contrary can build unwanted anxiety or stress. To build wealth that can lead to financial independence requires saving and investing money over a long period of time, in order to produce a return. This patient approach to building wealth, and as a result, financial independence, is both time proven and considerably less stressful. There’s one more piece to the time element to develop wealth and that is compound interest.

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Saving money over time is only the first part of the equation. The second part, and largest part, is investing the money and letting compound interest work to develop an exponential wealth effect. What does that mean? It means that investments over time will produce far more profits than the amount of money you actually put into the investments. It is a multiplying effect. An example: A one time $2000 investment with a 6% annual return will yield $xxx after 40 years. But if you left it accumulate for only 20 years, half the time,  you don’t have half of the 40 year amount, you have only xx% of it. It takes an investment in time, using compound interest, to develop wealth, and it grows more and more each year. Just like it takes time as an aging athlete to prepare for a workout to produce athletic results.

Limitations Can Be Your Friend

As an aging athlete, you have to recognize your limitations or else run the risk of hurting yourself. When I was 21 years old I ran a five minute mile as part of a fitness test in college as we were getting ready for my junior year of college football. I’ve got NO CHANCE of running that same five minute mile now, regardless of my preparation or efforts to perform at my best. I need to accept my limitations or risk being deeply disappointed or getting hurt when I tey. In essence, I need to be content with my diminished performance level.

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Contentment is also a key foundational element when it comes to financial independence. Without contentment (Being happy where you are, while on your way to where you are going), what you have will NEVER be enough. You will always think in your mind: “I need more to be happy, or rich, or successful, or wealthy, or (fill in the blank).” Part of being financially independent is to be independent of envy or perceived need for something to make you complete or happy. In fact, only when we can learn to be content in the moment, combined with gratitude for what we have, can we be truly independent of envy, covetousness and the sense of lack. There is certainly nothing wrong with ambition, but when that ambition prevents you from ever feeling secure, peaceful or blessed, you can never truly be financially independent.

Three Cheers For Consistency

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As an aging athlete one of the most important fundamentals of working out is consistency. You need to consistently stretch, consistently eat right, consistently hydrate and consistently work out because of what I mentioned before about losing your fitness level fast! When you can get into the appropriate consistent rhythm, your workouts and performance can be very rewarding.

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The same is true when it comes to financial independence. I have found that most financially independent people I have met didn’t hit the lottery or write a best selling novel to develop instant wealth, but built that wealth over time with consistent savings and investing. What do most of the financially independent people do consistently:

  • They save money consistently
  • They invest consistently
  • They live on a budget in order to meet their goals consistently
  • They track goals consistently to stay focused and on track

Consistency also lessens the sting of living below your means. If you consistently put money into an emergency fund, a retirement fund and a vacation fund, you eventually get used to that money being “gone” and you don’t miss the spending power in your day to day budget. Consistency is so important to old athletes and people pursuing financial independence alike.

Taking Advantage Of Technology

As you get older, an aging athlete is wise to take advantage of new technology to increase their performance, and comfort. There are new fabrics on the market that wick away your sweat while you perform. Running in the Texas heat, I depend on moisture wicking clothing. There are new shoes of all types that help you run faster, farther and with more comfort. There are new training apps that help you work out at peak performance. There is an abundant amount of new technology that can help you better perform.

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There is also new technology to help you obtain financial independence. There are tools like Mint to help you track your expenses and budget, Acorns to help you save spare change, Robinhood to help you invest and most banks now have automatic deposit and withdrawal for 401K plans and emergency savings accounts. Use technology to achieve your financial plans: In most cases it is easy, cheap (as in free), automatic and efficient.

Last, Know Your Why

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Motivation is paramount when it comes to working out or achieving financial independence. People ask me all the time: At your age, why do you workout so hard, and so consistently? It’s easy. I do it because it makes me feel great, it clears my mind, it challenges me and it helps me sleep so soundly. In other words, my “why” is to feel better and, God willing, live longer. It is worth it to me to put the effort in now, to feel better later. We need to “know our why” in the pursuit of financial independence too. We need to know why we are budgeting, saving and investing because it sure would be fun to live life unrestrained now. It would be fun, but it would not help us reach our goal of financial independence. Our financial independence “why” we sacrifice now is so that we can be independent later. Independent of money worries or stress and to be independent to follow our heart’s desire. To move working from something we have to do to survive, to something that we choose to do if we want to. Financial independence is not easy and it does not happen overnight. Just like trying to get into and staying in shape as an older athlete. But by using time to our advantage, practicing contentment, being consistent, taking advantage of technology and knowing our why, we can better enjoy the process and eventually achieve the goals of feeling good and experiencing financial independence at any age!

If you want more information on financial independence and/or the steps to get there, consider Dave Ramsey’s book “The Total Money Makeover”. Click the image to enjoy instant savings.

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

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

Dumb Financial Freedom Dichotomies & How To Avoid Them

Dumb Dichotomies

So, you’re eliminating your credit card debt. And your friend tells you that they know a thing or two about personal finance and tell you that you MUST quickly choose between using the Debt Snowball method or the Debt Avalanche method to pay off your debt or else you are making a huge mistake. Which method are you going to use?

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Really? There’s only two choices and I MUST pick only one right now and use it forever? Not true! Although there are pros and cons for these two popular debt elimination approaches, nothing says you must only use one of the two methods and be faithful to that method forever.  That’s a dumb dichotomy. You don’t have to pick one over the other. In fact, many times, a mixture of the two methods might be best. Why would we want to put that kind of unnecessary pressure on anyone who is trying to do something as important to personal finance as eliminate their credit card debt? Debt elimination is hard enough without undo requirements. Dumb dichotomies can get in the way of financial freedom because they make the task that much harder to accomplish. Here’s a look at some financial freedom dumb dichotomies and how to avoid them:

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Snowball Or Avalanche

To finish the discussion of which debt elimination approach is best, we first have know a little about the person eliminating the debt. Does that person need constant motivation to stay the course? If so, then the Debt Snowball is perfect, where the focus is to pay off the smallest credit card balances first and then work off the larger accounts as the smaller ones are paid off. This approach motivates the debtor in that the debtor sees a rapid reduction in creditors and uses that motivation to continue the debt elimination effort.

Another valid debt elimination technique is called the Debt Avalanche, whereby the debtor pays off the highest cost debt first. In other words, the debtor pays off the credit card that has the highest interest rate first, then works his way down the list towards the lowest interest rate card until all debt is repaid. This technique may interest a “math person” or a cost conscious person. This approach affords the debtor the lowest cost approach to debt elimination. This blog is not judging one approach versus another, but intends to highlight that you don’t have to pledge allegiance to one or the other. In fact, a combination of the two can very effectively motivate the debtor to eliminate the debt AND minimize the amount of interest paid during the debt elimination. For instance, some people have had success starting out with the debt snowball by paying off a small balance to get a quick win, and therefore boost motivation, and then switching to the debt avalanche to reduce interest payments.

From my point of view, “just tackle the debt!” Eliminate it as fast as possible and at the lowest cost as possible because debt, especially consumer debt, is the biggest obstacle to building wealth and more importantly, financial freedom. Debt snowball, debt avalanche or a combination of both…use either or both but just kill the debt!

Looking for a great resource to lead you through debt elimination? Check out Dave Ramsey’s book:

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

Emergency Fund: In Savings Or An Investment?

An emergency fund, money set aside for when, not if, you have a real financial emergency, is central for financial freedom. In effect, an emergency fund is self-insurance to ensure that an emergency  1) does not force you into deep credit card debt or 2) cause you physical and emotional stress from money worries. And for some time there has been an ongoing debate where that money should reside. The two loudest groups suggest that an emergency fund show either be placed in a savings account (because it is the most readily available) or in a secure mutual fund (because it can earn a “greater than inflation” return while sitting in the account). In reality, this is a dumb dichotomy, because you don’t have to choose one or the other. While both are valid options, you could also split the money between an account that is readily available (like a savings account, understanding it will have a very low or no return) and a safe investment like a mutual fund or something similar that produces a larger return on your money. While leading experts, like Dave Ramsey, suggest you have between three to six months of expenses in your emergency fund, you can allocate that money according to your priorities and risk level.

Investing: Active Or Passive?

Active investing, defined here as using professional investing resources to buy and sell investment instruments, is an effective investment approach. So too, is passive investing, where investors invest their money in simple automated investments, like index funds or ETF’s. I recently witnessed a lively debate where people took sides on the “right” investment approach. The battle was focused on the slightly better returns of the active investment approach versus the low cost and low stress of the passive investment approach. There is no one right answer! This is a dumb dichotomy. Both approaches work and the right approach for any investor is based on that investor’s needs and approach to investing. Some people, like me, have both active and passive investments. The point is, there’s no one right approach and you don’t have to unilaterally choose.

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Budgeting: To The Dollar Or With Margin

Budgeting is essential to achieving financial freedom because the budget “tells our money where to go instead of just wondering where it all went” (Dave Ramsey quote). Yet most Americans don’t take the time to budget and the results are not good. The facts are that the same percentage of people in America that do not budget (roughly 74%) equal the same percentage of people who are living paycheck to paycheck! Budgeting is important. But the debate between the experts that say you must either budget “to the dollar” and have every dollar accountable to a category, or, budget with a large amount of margin, or reserve cash, has formed a dumb dichotomy. It doesn’t have to be one form or the other. Pick the budget form that works for you and follow it. Since only 26% of Americans budget anyway, any form of budget would be better than the norm! There’s just a couple foundational rules that a good budget must follow to be effective and sustained: The budget must balance, must be measured and must be followed to be effective.

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Financial Freedom Is The Point

Eliminating debt, having an emergency fund, investing money and having a budget are all essential to developing financial freedom. But the approach to accomplish each one of these elements is dependent upon the person or persons involved, and any person suggesting that one approach is inherently better than the other is causing a dumb dichotomy, which is both unnecessary and distracting. Eliminate your consumer debt as fast as possible, using the method, or methods, that work best for you. Make and keep an emergency fund and reduce your financial worries. Invest money to develop wealth in the way you are most comfortable. Last, make a budget and follow it to ensure proper allocation of your precious dollars. Don’t let any dumb dichotomies distract you from your pursuit of financial freedom! These dichotomies are just…dumb.

For more information on financial freedom, check out Dave Ramsey’s book:
 
The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

And Then There Was One

 

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On The Path To Financial Freedom

To this point, the path toward financial freedom has been straight forward. The budget is in place. All consumer debt has been paid off, including cars, student loans and credit cards. Emergency fund is all set. Same is true with college savings for our last child in the house. We are saving and investing 15% toward retirement and tithing 10% to our church. And any left over money gets invested in a taxed account that will be used for future purchases.  Last, everything is automated so it “just happens”. Now, time and compound interest should produce results that lead toward freedom freedom. So far, so good. Now there’s only one debt left to deal with, the home mortgage, so the big question is: Do we pay off the mortgage, our last debt,  or do we invest that money to meet future needs?

Two Choices, Is One Better?

I think the choice between paying off an existing mortgage on a primary residence or investing that money to growth wealth is a matter of priority between financial freedom and financial independence. They are the same thing, you might say? I don’t think they are. Financial freedom puts peace of mind at a priority, including freedom from money worries and anxiety. So that would favor paying off the mortgage, because a debt, any debt, is an obligation that presumes we know and can control the future. Unknown-3It presumes we can make all the payments, but that is not a sure thing. Because in a 30 year mortgage, (15 year mortgage if you are really savvy), a number of things can go wrong that are out of your control and could prevent you, or hinder you greatly, from paying the mortgage like job loss, physical injury or other family health related issues. Yes, an emergency fund certainly helps in these circumstances, but if peace of mind and total freedom from money worry is the top priority, you probably would pay off the mortgage as soon as possible to ensure you always have a place to live.

Want financial freedom but don’t know where to start? Start with Dave Ramsey’s Total Money Makeover, click and enjoy!


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

Financial independence, on the other hand, prioritizes choice over freedom. And it is quite possible that investing the money, instead of paying off the mortgage, can provide more choices. Choices like work (or not to work) choices, location choices and purchase choices. The assumption here is that the return on the money invested is greater than the savings in interest paid on the mortgage. And for the last ten years, including the financial recession of 2008-2009, that has clearly been the case. First, let’s look at the math.

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The Math – The Easy Part

Simply put, the cost savings by paying off the mortgage in the last ten years has been significantly less than the return on investment if that money was put into any S&P500 Index Fund for investment. This is how it works out for me: Mortgage interest rate of 3.875% minus the mortgage interest tax break (use a conservative tax rate of just 10%) gives you an effective cost of the mortgage money around 3.5%. Another way of saying this is that the financial benefit of paying off your mortgage is roughly a 3.5% return on your money. Compare that with investing that same money in a simple S&P500 Index Fund for the same time period, ten years, which according to Fidelity Investments, returned 7.5% annually, not including dividends. Minus out the taxes on that return and you have an after tax return of roughly 6.7%, or almost double the return when compared to paying off the mortgage!

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But There’s More

The math between our two choices is the easy part. Clearly, investing money instead of paying off the mortgage will generate more value. In my example, investing produces almost two times the return as paying off the mortgage. But there are several other factors to consider:

  • Peace of mind – Clearly paying off the mortgage will give you great peace of mind but it will cost you. In my ten year example, the investment difference of investing the money instead of paying down the mortgage is worth over $115,000! That is a high cost for peace of mind but for those that are truly risk adverse, it may be still worth it to pay off the mortgage.
  • Cost of the mortgage – If your mortgage interest rate is over 5%, the financial freedom of paying off the mortgage may be worth it, since the financial benefit of investing the money is much smaller. But, something else to consider, if your mortgage interest rate is that high, consider refinancing your mortgage. Today’s rates are much lower.

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It’s A Personal Decision, Possibly An Expensive One!

For me the decision is simple, because my investments actually did far better than average over the past ten years, (10% including reinvested dividends) and my mortgage rate is fixed at 3.875%, I choose to continue to invest our money instead of using that money to pay off the mortgage. Our six months of expenses emergency fund gives us peace of mind as far as making the mortgage payments, as does our long term disability insurance. Worst case, I can change my mind any time and pay off the mortgage with a portion of the investments. But the priority is to invest the money for a greater return. Assuming my wife and I live an average life span and we keep the money invested in the market, we can expect to earn about $400,000 more dollars by this decision than if we decided to pay off the mortgage. That certainly helps calm the nerves about having a mortgage!

What do you think? This is what I think: Financial freedom (or independence) is hard work, but it is worth it!

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

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

An Unconventional Path To Financial Freedom

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Financial freedom is frequently associated with making enough money to independently afford the lifestyle of our dreams. But this family approached financial freedom from a totally different perspective: How a quick series of disasters and bad luck forced a family to reconsider their lifestyle and make the tough decisions that ended up in a “Less Is More” financial freedom success story. Read on to be inspired by an unconventional path to financial freedom!

The Worst Day

The day started out well enough: This couple (We’ll call them Bill and Jeanette) in their forties had two well-paying jobs, he was an engineer and she was an accountant. They lived in a large four bedroom home, even though their last child had finally graduated from college and was out of the home. Their finances seemed solid but they had some debt: a mortgage, two car loans and some credit card debt. They were saving some money towards retirement but it was not a priority. There emergency fund was small. It was a pretty normal American financial scene in their household.

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Then one hot August day it all got startlingly shaken: First, on the way to work, Bill got into a car accident (no fault of his own) that ended up totaling his car. If that wasn’t bad enough, when he finally arrived at work, he was informed that his good paying job was being eliminated and he had a twelve week severance period (25 years on the job) to find new work. In the meantime, Jeanette also encountered some unexpected trouble. She fell while on the job and broke her right (writing) wrist. The wrist injury would require surgery and at least two weeks out of work. In an instant, their somewhat stable work and home life was upended, putting strain on their marriage and finances.

The Situation

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The situation seemed pretty dire: Down to one income, one car and one healthy worker between the two, this family had to make some big decisions. They summarized their situation as so:

  • The large house and debt was too much for the one income
  • Medical bills compounded the financial strain
  • Their savings was woefully inadequate, maybe a month’s worth of expenses at best
  • They already knew they were not set up well for retirement
  • Bill had no job and little enthusiasm to find a new one like his old one
  • Significant strain on their health and marriage

The Big Decision

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Fairly quickly, this husband and wife team made some big decisions: First, before Bill even found a new job, they would downsize their home and lifestyle. This downsizing would have three main goals:

  • Lower expenses which would free up money to eliminate debt
  • Start seriously saving for retirement and building an appropriate emergency fund
  • Attain and maintain financial freedom

They asked some hard questions of themselves, like:

  • Do we need this much house? Clearly not
  • Do we need two cars?
  • Do we need these high lifestyle expenses: big cable TV bill, lots of eating out, lots of discretionary purchases, unused gym, Hulu, wine club memberships, etc
  • Can we thrive on only one professional income?

The breakthrough came once they realized that these things (house, jobs, cars, etc) did not define them individually or as a couple. They realized, too, that this situation was a real opportunity to re-think who they are and what they are working towards.

The Plan

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With much excitement and anticipation of a better future, the plan came together quickly. Immediately they made financial freedom their purpose and being able to retire in less than 10 years their goal. This is what they decided to do:

  • Sell the four bedroom, four bath house and downsize to a two bedroom, 2.5 bath house about 30 minutes further away from the city they lived in to get a better value.
  • Aggressively eliminate total credit card debt with existing savings and some of Bill’s severance money.
  • Take the insurance money from the totaled car and pay off the totaled car auto loan. Try to live with one car.
  • Live by a budget. This budget was targeted to be 40% of the previous spending level
  • Reduce their lifestyle. No more cable, gym membership, endless eating out and mindless spending.
  • Fully fund their retirement funds each year

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They met with their realtor (after the successful wrist surgery) and after a while put up their home for sale. It took three months to sell, but at a nice profit. With the house sale proceeds they paid off their credit card, paid off the first car loan and funded their emergency fund (also using a portion of the severance package). They also set up automatic (full) funding of their retirement accounts and made a new family budget. As a result of these financial moves, they realized they had a new opportunity: With the new budget, only one car and no debt, they learned that Bill did not have to go back into a full time professional position. Bill could, if he wanted to, be the artist/craftsman/amateur farmer he had always wanted to be! After much thought and prayer, they decided to make the big move and Bill began setting up his new career(s).

The Math

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It took another month after the house sale (four months after putting their house on the market) to move into a comfortable (1,800 s.f.) home. The previous home was 4,500 square feet. Not only were they able to take their home downsizing profits to pay off debt and supercharge their retirement fund, their new monthly operating costs of their smaller house dropped more than $1,800 between the mortgage, taxes, HOA and utilities! Between those savings and the savings from reducing cars and their lifestyle they were able to take out more than $3,40o of expenses per month! See the budget below.

Bill and Jeanette’s New Monthly Budget

Income:    $7,200 ($6,400 Jeanette, $800 Bill…and growing)

       minus ($1,900) for taxes and tithing

Net Spendable Income: $5,300

Expenses:

Total Housing:    $1,450 (Small mortgage, utilities, taxes, insurance, no HOA)

Auto:                      $ 285 (Gas, insurance, minor repairs – newer car)

Debt:                       $ 0 (Hurray!)

Savings/Retire:   $2,300 (401K, SEP, investments, etc)

Food:                     $ 425 (Includes eating out)

Entertainment: $ 300

Medical:               $ 250 (Prescriptions and HSA funding (savings))

Misc:                     $ 290 (Toiletries, gifts, etc)

The result is a balanced budget, with more than $2,400/month going into savings (45% of budget). There is no debt, a fully funded emergency fund (six months of expenses) and ample financial peace. In addition, Bill’s new artist/craftsmen venture not only feeds his soul but continues to grow slowly, with upside to add more to their monthly income.

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From Tragedy To Transformation

Bill and Jeanette turned a tragic day into a transformation to financial freedom. By looking at the abrupt disruption thrust upon them as an opportunity to break out of their rut and take action, they were able to achieve financial freedom. Here’s a short list that describe’s their financial freedom:

  • Balanced budget on their combined incomes
  • 45% savings rate
  • No consumer debt. Only small mortgage on house, to be eliminated in 8 years
  • Full emergency fund
  • Aggressive retirement savings to support retirement in 10 years
  • Bill was able to change his career to pursue his dream
  • Smaller house, simpler lifestyle, more peace, more contentment

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Truly, Bill and Jeanette turned tragedy into a contentment-filled, simple lifestyle that allows for current and future dreams to be realized and opens the door for more freedom and options. Now that’s financial freedom!

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Financial Freedom: What I Would Do Differently If I Could Do It Over Again

A Good Start

I’ve been an adult for almost 40 years and the primary bread winner for most of that time. I had a great education, I was taught well by my parents on how to handle money, and, I had strong leadership in my life. As a result, I learned to handle money and possessions well: save money, live on a budget, limited use of debt and didn’t compare myself to neighbors or friends. As I look back, I had a good head start toward sound personal financial management. And I built off that foundation to develop personal financial freedom.

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And still, there are so many things I would do differently if I did it all over again!

To start, I would be more receptive to the wisdom and advice of “smart old guys” who gave me advice because they loved me and wanted the best for me. Second, I would have slowed down to speed up: Slowed down my lifestyle and lifestyle inflation as a means to speed up the attainment of my financial goals and dreams. Third, I’d trust the math more and my feelings and emotions less.

What Does All This Mean?

It means that although I did pretty well in obtaining and maintaining financial freedom in my life, there are a bunch of things I want to tell everything young adult so that they could do even better. I want to scream: “Trust me in this! It may not sound fun right now, but boy are you going to appreciate it a little later.” So here it is. Here is a list of things I would do better to reach financial freedom faster, if I could do it all over again.

“Begin With The End In Mind” Stephen Covey

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The first thing I would tell every young adult who is just starting out is to take a moment to define their life dreams and financial goals. Before they get their first big paycheck, think about what it is you want to accomplish. For some people, this may be very hard because they really don’t know where they want to go. But at a minimum, try to answer some general questions:

  • Do they want a family? children?
  • Want to retire at some time?
  • Want to have a home, cars, travel, etc?

Having at least a vague idea of dreams and goals does two things: It helps PRIORITIZE our thinking and decisions, and it provides the MOTIVATION we need to keep moving forward toward financial freedom when the clutter of daily life weakens our resolve.

“Don’t Save What’s Left After Spending. Spend What’s Left After Saving.” Warren Buffett

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Once we have some basic dreams and goals in place, I would encourage people to set up automatic savings directly from their paychecks towards those goals. I would suggest setting up the savings to come out of the account on the day your paid so you don’t even see, or miss, the money.

  • Immediately start saving money into an Emergency Fund. Start with a goal of having $1000 available for any emergency, working to build that total up to 3-6 months of expenses. Why? Because an emergency fund is self insurance against disaster, including job loss and medical issues.
  • Want ot retire someday? Immediately contribute the maximum toward your 401K/IRA and make sure you get the company match. This is one of the biggest wealth creation moves a person can make. Why? Because 1) Most companies match a portion of your savings, giving you instant return on your money. 2) Retirement accounts have tax advantages. Paying less taxes is a good thing. 3) Compound interest over time is what creates the wealth!
  • Immediately set up automatic savings for vacations, future cars and any other big ticket items you know you will be needing in the future.
  • Once the emergency fund is fully stocked, money can start going into investments, which will be covered later.

“A penny saved is a penny earned.” Ben Franklin

By setting up all automatic savings, you fund your goals and dreams before you even see your paycheck. Over time, you will get use to the amount that is left over and have a better chance of living within a budget based on the remaining money.

“Rather Go To Bed Without Dinner Than Raise In The Morning With Debt.” Ben Franklin

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Debt; paying money to use other people’s money, is a wealth stealer. Debt eats up precious dollars fast. For most of us, buying a home cannot occur with debt, so for this discussion, by debt I am referring to consumer debt: credit cards, store loans, car loans, lines of credit, etc. Debt steals away financial freedom because it compounds, so the longer you take to repay it, the more it costs you. It also puts the borrower in a form of bondage, in that, the repayment of the debt is an obligation regardless of your ability to pay. It assumes we know and control the future when we don’t. Things like medical issues, job loss and other tragedies can prevent a person from paying their debts, yet the debt is always due. What would I tell the young adult just starting out?

  • If you have credit card debt, eliminate it as your top priority, then stay out of debt. Pay off your total credit card bill every month.
  • Get patience and use cash for everything. Don’t have the cash? Don’t buy the item.
  • Only consider debt to purchase appreciating assets, like a house or for business. But even then, the more cash the better.
  • If the temptation of using a credit card is too great, cut up the cards. Use a debit card.

One more thing about debt. Excessive use of consumer debt is a sign of even bigger things in your life that may steal wealth from you and prevent you from living in financial peace. Using cash requires you to earn it before you spend it. Debt is instant gratification, but at a very high cost. Cash requires you to be disciplined, requires you to prioritize and allocate scarce resources (cash). Debt doesn’t have to wait, requires no discipline nor patience, and since the bill usually comes later, the absence of immediate payment promotes overspending. Develop patience when spending your money to prevent impulse purchases and overspending.

“How Many Millionaires Do You Know That Become Wealthy By Investing In Savings Accounts? I Rest My Case.” Robert Allen

Investing money to realize a gain is risky, but it is the best source of creating wealth. If we are working toward financial freedom, we must let our money work for us and that requires investing our money. The only money I would keep in a savings account would be a portion of the emergency fund. All the rest of the money should be invested in an income producing investment, and there are many types: stocks, bonds, mutual funds, ETF’s, real estate, CD’s, annuities, and the list goes on. What would I tell a young adult?

  • Invest, invest, invest and let compound interest generate wealth
  • The investment must produce income greater than the rate of inflation for you to generate wealth
  • The younger you are, the more aggressive I would suggest. Stocks have provided the greatest return over time. Don’t know what to do? A safe long term investment is a low cost equity index fund from a reputable company. Think Vanguard or Fidelity to name two. Still need help, engage a trusted investment professional.
  • Invest in timeframe appropriate investments: Need the money in less than 5 years, think conservatively. Have a longer timeframe? You can be more aggressive
  • Pick quality investments, always
  • Slow and steady wins the race. It is better to produce consistent slow gains than deal with investments with wild profit gyrations up and down and hope the timing is right when you need to take the money out of the investment. It never seems to be good timing.
  • “Compound interest is the eighth wonder of the world.” Albert Einstein

“Money Never Made A Man Happy Yet Nor Will It. The More A Man Has, The More He Wants. Instead Of Filling A Vacuum, It Makes One.” Ben Franklin

Most adults, young and old, know that money brings options and choices. But too many adults view having more money as the only answer to financial freedom and solving financial issues. The fact is, having more money CAN be a solution for financial freedom but without discipline, contentment and gratitude, more money will never be enough. What would I tell a young adult?

  • Money is only a tool, that if used correctly, can help you obtain and maintain financial freedom. But keep money in proper context. It is not to be worshiped nor the sole object of our desire.
  • Learn to be content and happy in any and every circumstance. Building wealth is a journey. Sometimes a very long one. Enjoy every minute because life is short.
  • Be grateful for what you have, never letting envy of what others have steal your joy.
  • Use discipline in the use of every dollar. Later on we talk about following a budget, but here I would say this: Be diligent with what you have because seemingly small wasteful spending can lead to large regrets later.

“It’s Not How Much Money You Make, But How Much Money You Keep.” Robert Kiyosaki

A spending budget is the single best way to allocate your money according to your goals and objectives. A budget simply tells our money where to go each month instead of wondering where it went when its all gone. Yet less than 25% of adult actually budget. So what is the result? How about the fact that 88% of adults live paycheck to paycheck or worse! So what would I tell a young adult?

  • Make a budget to guide your spending to support your goals and dreams!
  • The budget can be as brief or detailed as you like, but follow it, and check actual spending regularly to make sure you are following it.
  • Marry a budget with a good cash management process. Some go old school and use an envelope system. But most use technology to automatically pay bills and transfer money to savings. This is the easiest way to make sure your money goes where you want it.

Financial Freedom Is The Goal, Starting Early Is The Key

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Financial freedom is 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. Financial freedom goes far beyond having a few bucks. Sustainable financial freedom enables us to reach our potential as people.

Everyone can obtain and maintain financial freedom. Maybe not everyone can be rich, but everyone can have financial freedom. Start now! The key is to start toward financial freedom as early as possible to let compound interest and time build your wealth. Starting early also helps us prevent bad spending habits from forming in the first place. Key, too, is understanding money, and the amount you make, is only half of the financial freedom equation. The other half is spending and investing wisely. I hope this personal finance  wisdom listed above encourages all young people to start early, save aggressively, spend wisely and view debt with contempt…to allow each and every person obtain and maintain financial freedom!

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FREE123: Freedom In Less – Spring Break Update

Freedom in Less

FREE123: Freedom In Less” is my personal account of pursuing financial freedom by pursuing less: Less stuff, less complexity and less spending. The purpose is not deprivation, but to achieve more financial goals while experiencing contentment and purpose. Take a look:

Less Is More – The Beginning

This series got started one day when I was daydreaming one day about my happy place and how I feel when I am there. For me that place is Kauai Hawaii, on a beach, with a 84 degree sunny day (every day seems 84 degrees and sunny to me there). When I am there, just experiencing the beauty, I am content, happy, joyful and grateful. To say the least, when I am there, I want nothing else. It is simple and I am content. Then I got to thinking: Why can’t I experience that simplicity and contentment more often? Like at home? In my everyday life? The answer is I can. And a simple contented life would greatly enhance my goal of financial freedom.

The Goal: Purposeful Simplification

For this season in life, I am going to purposefully simplify my life by finding freedom in less. Less stuff, less complexity and less spending as a means to reaching my financial freedom goals and find more contentment and purpose. The goal is to live more purposefully, a frugal budget with clear goals and a renewed focus on reducing consumption to achieve more contentment and true freedom.

Spring Break Update

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This month my wife and I took a vacation with a simple focus. Enjoy the natural beauty of the island (St. Croix) and immerse ourselves in the people, food and authentic culture with little to no tourist activity. In other words, live in the moment like the native islanders do, spending lots of time enjoying the simple pleasures. We did this for three reasons: First, we needed to slow down and recharge. Second, this is probably the only time we will ever visit this island so we wanted an authentic experience. Third, and most of all, we wanted to simplify the vacation to relax and enjoy simple things like laughing, resting and eating together. We had a blast! Take a look at some of the “Less Is More” decisions we made:

  • We rented a small little cottage (AirBnB) owned by a local artist to give us a feel of what is was like to live like the locals. No air conditioning, pool or cable TV. Instead we enjoyed the simple sounds of the island through our open windows that allowed the trade winds to blow through the cottage. It was amazing. So simple and enjoyable.
  • We rented a car and made it a point each day to go to the local beaches, food stands and watering holes and we met so many interesting and enjoyable people who ended up sharing the week with us. There is nothing like having locals take you to the best (secret) places. And we made fast friends.
  • We kept it real simple. No schedules, no large groups, no long lines. We hiked, swam, walked beaches, searched for sea glass and snorkeled. Easy, fun and very inexpensive. Any we also got a little exercise!
  • We depended upon, and benefited from only using recommendations from locals. As a result, every experience was amazing and extremely inexpensive, like free!

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FREE123: Freedom In Less Summary

This month we experienced a “Less Is More” vacation in St. Croix. We decided to simplify and live in the moment on this vacation in order to slow down and spend less. Really, to vacation in a less-is-more style by doing/spending less and enjoying time together more. It was great! The things we did do were memorable and really felt special. The extra time we just hung out together was awesome and restful. And the laughs were endless. By limiting events/activities and excessive vacation spending, we didn’t break the bank and yet enjoyed the most important things: time with friends and shared experiences.

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Free123: Freedom In Less – Thanksgiving Update

Freedom in Less

 

FREE123: Freedom In Less” is a monthly account of pursuing financial freedom by pursuing less: Less stuff, less complexity and less spending. The purpose is not deprivation but to achieve more financial goals while experiencing contentment and purpose. Take a look:

Less Is More – The Beginning

This series got started one day when I was daydreaming one day about my happy place and how I feel when I am there. For me that place is Kauai Hawaii, on a beach, with a 84 degree sunny day (every day seems 84 degrees and sunny to me there). When I am there, just experiencing the beauty, I am content, happy, joyful and grateful. To say the least, when I am there, I want nothing else. It is simple and I am content. Then I got to thinking: Why can’t I experience that simplicity and contentment more often? Like at home? In my everyday life? The answer is I can. And a simple contented life would greatly enhance my goal of financial freedom.

The Goal: Purposeful Simplification

For the next season in life, I am going to purposefully simplify my life by finding freedom in less. Less stuff, less complexity and less spending as a means to reaching my financial freedom goals and find more contentment and purpose. The hypothesis is that living on a frugal budget with clear goals and a renewed focus on reducing consumption will lead to more contentment and true freedom.

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Thanksgiving Update

This month my family took a three generation family vacation with a decidedly focused twist. Even though it was a travel vacation to Cabo San Lucas, which is beautiful by the way, we focused most of our time on spending time together. Yes, we did rent jet skis one day and went out to Land’s End another, but for the most part we just hung out on the beach and enjoyed each other’s company. We did this for three reasons: First, this was our first time traveling as a group and we wanted to make sure it went well. Second, with five people, including four adults, we did not have an entertainment budget to play/party hard every day. But most of all, we wanted to simplify the vacation to relax and enjoy simple things like laughing, resting and eating together. We had a blast! Take a look at some of the “Less Is More” decisions we made:

  • We ate out at a restaurant one meal a day. We had a condo that had a full kitchen so we took advantage of that and only went out one meal a day. This saved some money and a lot of time, giving us more beach time. And, it made the trip to the restaurant more fun because the infrequency made it more special.
  • We limited ourselves to one big activity a day. I normally want to go, go, go when on vacation but it is tiring to some of my family and can be very expensive. So we did one activity together each day and it was great: We really valued the activity and we had more relaxing time together to talk, read and laugh together.
  • We chose to walk instead of drive…everywhere. Our condo was literally on Medano Beach and within walking distance to the marina and downtown, so we skipped renting a car or taking a taxi and enjoyed walking everywhere. We had more time to talk, we saw more things and we saved a bundle. Also got a little exercise!

 

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FREE123: Freedom In Less Summary

This month we experienced a “Less Is More” vacation in Cabo San Lucas. We decided to take extended family, three generations, but vacation in a less-is-more style by doing/spending less and enjoying time together more. It was great! The things we did do were memorable and really felt special. The extra time we just hung out together was awesome and restful. And the laughs were endless. By limiting events/activities and excessive vacation spending, we didn’t break the bank and yet enjoyed the most important things: time with family and shared experiences.

“FREE123: Freedom In Less” Monthly Update

FreedomFREE123: Freedom In Less” is a new monthly step-by-step account of pursuing financial freedom by pursuing less: Less stuff, less complexity and less spending. The purpose is not deprivation but to achieve more financial goals while experiencing contentment and purpose. Take a look:

 

Happy Place

You know that happy place we all have where just being there is enough? For me that is in Kauai Hawaii, on a beach, with a 84 degree sunny day (every day seems 84 degrees and sunny to me there). When I am there, just experiencing the beauty, I am content, happy, joyful and grateful. To say the least, when I am there, I want nothing else. It is simple and I am content. Then I got to thinking: Why can’t I experience that simplicity and contentment more often? Like at home? In my everyday life? The answer is I can. And a simple contented life would greatly enhance my goal of financial freedom.

The Goal: Purposeful Simplification

For the next season in life, I am going to purposefully simplify my life by finding freedom in less. Less stuff, less complexity and less spending as a means to reaching my financial freedom goals and find more contentment and purpose. The hypothesis is that living on a frugal budget with clear goals and a renewed focus on reducing consumption will lead to more contentment and true freedom.

What I learned in September 2015

This month the total dollar savings by consciously living a simpler, more contented lifestyle was over $730. And frankly, it was quite easy. Take a look at each area of savings with brief commentary:

  • Saved $36 this month just by making my own delicious coffee as opposed to Starbucks. My coffee is from Hawaii, happy place, is more convenient and on demand. Why wouldn’t I do this all the time?
  • Saved $125 by being smarter on date nights. My wife and I try to date every week. Her happy place is a local movie house and eatery that includes a cold drink after the movie to discuss what we saw. Why do the expensive restaurant thing all the time when for far less we can spend quality time doing what she loves. Let’s face it, when she is happy we are ALL happy.
  • Saved $125 driving less! Gas money saved! Being more efficient in my errands, business travel and being more home entertainment focused saved us almost four tankfuls of gas.
  • Saved $320 this month JUST NOT BUYING STUFF from our discretionary spending budget. Spent just $150 on school supplies, batteries and a dance outfit for our daughter’s dance class at school. No shoes, clothing, drinks, Amazon impulses, etc, etc, etc. Guess what? I don’t miss a thing! We are doing just fine.
  • Saved $125 in family dining (eating out) by leveraging our daughter’s passion for cooking. Instead of going out for comfort food or splurge on something because we don’t feel like cooking, we asked our 12 year old daughter to make one meal a week and it was awesome! First, our daughter loves it, second, the food is great, she is quite a good cook, and third, we saved easy money even though we ate like kings, and queens.
  • Last, let me tell you what we DID do instead of spending the money. We entertained at home (puzzle, game night, crafting), we had friends come over for conversation and laughter, we enjoyed time reading on the back porch now that the furnace known as the Texas summer is over and we just spent some time together as a family. It was awesome and easy. I can’t wait for more next month.

January’s FREE123: Freedom In Less Summary

I think we are on to something. By purposefully reducing spending and busyness we have actually gained time, contentment and freedom, not to mention saved money toward our financial freedom goals. There is a catch. I can see that it is possible to go too far and become isolated or anti-social. So the quest will be to balance the freedom lifestyle with involvement in our community. I am up for this challenge! And next month I may track hours saved as well as money so we can share both components of true wealth!