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Financial Planning

5

min read

September 15th, 2020

How to Gain the Freedom to Spend with Three Easy Steps

Wants and needs are vastly different, especially in a financial sense. 

Individuals, couples, and families alike all encounter items including clothes, food, trips, experiences, etc. they want to splurge on.  However, everyone might not be in the right place financially to do so. 

If your goal is to gain the freedom to spend money on things you want, then you must understand a couple of things first: your personal flow of money and the basic steps for planning your flow of money.  

Understanding your personal flow of money involves tracking the inflow and outflow of money.  You might be surprised once you start tracking your personal flow of money to find your $5 coffee from Starbucks everyday is not practical relative to your income. Little things like this add up a lot when you could be saving more instead.  

In order to understand your personal flow of money, there are just a few steps you must follow.  First, figure out your income.  Next, calculate and record your fixed expenses.  These expenses do not fluctuate and may include mortgage or rent payments, car payments, utility bills, insurance payments, subscriptions, loan payments, etc.  These expenses vary from person to person, but it is important to take a close look at each expense to determine whether you can afford to make regular payments based upon your income.

This next step is very important: set aside money each month to save.  We typically recommend you aim to regularly save around 20% of your income.  Set this money aside into a safe investment account such as bonds.  If you plan on purchasing a house in the near future, then you might consider putting your savings in the bank so it is safe and insured by the FDIC.  

Finally, calculate your discretionary expenses, or things you want to spend your money on.  Fitness class passes, weekend travel, shopping trips, etc. Everyone is different in this regard, so keep your goals realistic to your budget.  As you accumulate wealth and build up your investment portfolio, you will gain more freedom to spend. 

Maintaining a strong, keen awareness of your inflow/outflow of money will help you gain the freedom to spend sooner and more effectively. 

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