Know Your FI Number

Financial Freedom in 2021! Take Action: Day 19

Whether you plan to retire early or work until the Lord takes you home, it’s helpful to know the magic number you’re aiming toward to no longer be dependent on a regular paycheck to pay your bills and live a full life. Your FI (Financial Independence) number is the amount of net worth you need to support you for the rest of your life moving forward.

The breakthrough Trinity Study published by three professors from Trinity University in 1998 determined a safe withdrawal rate* from stock portfolios despite the fluctuations of the market, and the conclusions they made have had a huge impact on retirement planning. Their research produced the “4% Rule” mentioned in yesterday’s post. What this means is that if you can estimate your annual expenses for when you plan to retire (or when you’re hoping to reach that state of financial freedom), you can multiply that yearly amount by 25. This is a simple way to calculate your FI number.

Here’s an analysis of how I’ve calculated my family’s FI number:

  • Anticipated Retire Early Date: January 1, 2030
  • Family Status (at that time): 2 children graduated from high school, 2 still in grade school
  • Potential Side Income: Real estate investing (monthly cash flow)
  • Estimated Annual Expenses: $70,000
  • Expenses Remaining after Side Income: $70,000 – (10 homes * $3600 cash flow) = $34,000
  • Required Net Worth: $34,000 * 25 = $850,000
  • FI Number (with RE investing): $850,000 … almost there!
  • FI Number (without RE investing): $1.75 million … NOT almost there!

There are so many variables, right? But that’s ok. The analysis is the the fun part. It’s a game to see how low you can get your expenses by paying off debts and cutting unnecessary spending. There are also so many ways to earn a passive income to offset your anticipated annual expenses and decrease your FI number; real estate is just one of them. What’s important is that you continue to keep track of your expenses and net worth with intentionality. If you do that, chances are that you’ll reach FI much sooner than planned.

In the example above, I conservatively estimated owning 10 doors in our real estate portfolio at $300/month cash flow, but our goal is to own 20, and maybe our average cash flow will be even higher than that. If so, we may be able to cover ALL of our anticipated expenses through those investments. We may also downsize our home with fewer children living with us or we may decide to do traveling homeschool, which will decrease our living expenses, and therefore, our overall annual expenses.

The point is that things will change; the future is unknown. The good news is that you now have a framework and an easy way to calculate your FI number even as income, expenses, and investments change.

Another aspect to consider is that many believe that the safe withdrawal rate is now higher than 4% and closer to 7%. This would significantly reduce how much you’d need in your nest egg. At a safe withdrawal rate of 7%, our FI Number (without real estate investing) drops to $994,000!

Today’s action step is to calculate your FI number. It’s ok if you have a few different scenarios with a few different outcomes. Just doing the calculation will give you a ballpark to aim for and get you in the habit of doing the math as things change. There are FIRE calculators online that you can use to find your FI number while taking into consideration your side hustles, higher or lower withdrawal and return rates, as well as anticipated expenses. So… what’s your number?

*The safe withdrawal rate (SWR) method calculates how much a retiree can draw annually from their accumulated assets without running out of money prior to death.

Increase your Income

Financial Freedom in 2021! Take Action: Day 16

The term “side hustle” has become very common in the last couple years. It seems that every other person has a small side business, MLM venture, after-hours hustle, You Tube channel, Etsy shop, home bakery, or blog to try to add to their regular W2 income. If you type “side hustle” into google, there are thousands of articles and websites dedicated to sharing ideas on maximizing your earning power with a second, third, or fourth stream of income. I’ve found a list of 100 side hustles that can make you $500+/month and 50 ideas for a lucrative side business. There are even several weekly podcasts dedicated to making extra cash on the side.

The underlying theme is that in our modern culture, in which 80% of Americans carry debt, people need to make even more money. Sometimes a side hustle is a passion project or a hobby. Sometimes it’s a long-sought-after dream slowly coming to light. Sometimes it’s a way to reach financial independence much faster. However, many times, people launch into side hustles to pay off student loans and consumer debt. With the cost of living (and spending) today, many W2 jobs don’t offer a salary that allows people to get out of debt and get ahead quickly enough.

The ultimate goal of financial freedom is to let your money work for you, not the other way around, but in order to reach that goal, it may be necessary to trade some of the extra time you currently have for some extra cash.

Today’s action step is to review the articles and lists linked above to determine if there’s a way for your family to earn a side income from a side hustle. But before launching into anything, calculate what your time is worth and what you could really earn. Also, remember that it’s usually best to stick with what you know and utilize your current skill set.

Which side hustle seems most feasible for you? Or, if you already have one, what do you love about it? Please share!

Cut Healthcare Costs

Financial Freedom in 2021! Take Action: Day 15

What a whale of a topic, right? Everyone from you to your parents to the members of Congress is trying to figure out how to cut costs on healthcare. On the political side of things, the debate will likely go on and on throughout our lifetime and beyond. On the personal side, thankfully there are a few strategies we can employ to reduce how much we spend on our own care.

Keep in mind that healthcare and health insurance are two different things. Today’s focus is on the cost of healthcare, but there are a few services you can take advantage of by carrying health insurance.

  • Nurse Line – Check to see if your insurance provider offers one; most of the big names do. Blue Cross Blue Shield has a nurse line 24/7/365 to answer questions about wellness, prescription drugs, self-care/at-home treatments, allergies, and even your specific symptoms. And this service is free. So, if you’re not sure whether you should see a doctor or if you might be having an allergic reaction or whether you’re taking the right medication for your symptoms or if there’s a vitamin or supplement that might help with a genetic predisposition to a chronic disease or if you’re unsure as to how two medications might interact or if you’re curious about a weird pregnancy symptom, etc, etc, try the FREE nurse line first and possibly save yourself a trip to the doctor as well as the co-pay.
  • Virtual Visits – If the nurse line doesn’t answer all your questions, try a virtual visit with one of the doctors with the insurance company. Major providers are now offering virtual appointments with doctors working for them. Your co-pay may even get reimbursed by your insurance provider if you use their own virtual medical platform. (Call to check your plan’s benefits.)
  • Benefits Summary – Know before you go. Call your medical or dental provider before going in for a visit or procedure and ask for the specific codes that will be billed. Then, call your insurance company’s benefits line before going to your appointment to ask for the fees allowed in your specific area for each code and how much is covered by your plan. Don’t assume that the doctor’s or dentist’s office quote is exactly right. Also, keep in mind that if you’re seeing someone out of network, that doctor/dentist does not have to charge the contracted rate for your area, and you’d have to pay the difference between what that doc charges and what your insurance company has set as a maximum.

In addition to making the most of your insurance benefits, keep these tips in mind for future medical expenses:

  • Over the Counter vs Rx – The assumption is often that over the counter drugs are cheaper than prescription and that generic is cheaper than name brand. But these are not always true assumptions. You have to ask and compare. My daughter, who has Crohn’s disease, is on a dual-med therapy that requires a folic acid supplement. I immediately decided that I would buy that over the counter, knowing I could get a full bottle for under $10. I assumed a prescription would be more. Then, I asked… and I was shocked! A full month of the supplement only cost us 47 cents! However, for her iron supplement, buying over the counter was half as much as the prescription. You have two resources for this comparison. You can call the insurance company nurse line to discuss the medication you’ve been prescribed to find out if there are generic or over the counter equivalents. Then, you can ask your pharmacist to price them all out for you. (Another option is GoodRx, but I’ve never tried that app.)
  • Shop Around for Non-Urgent Procedures – Need an MRI, a hip replacement, or back surgery? You might find a drastic difference in price across town or across the country. There are now websites that allow you to shop around for the cost of specific procedures, and the variation in price may shock you into medical arbitrage. If you need a hip replacement in the Austin area, you can find prices ranging from $19,000 to $25,000, but if you’re willing to travel a short distance to Baton Rouge, LA, you can find the same procedure offered at half the price. Of course, you want to do your due diligence and make sure that the doctor/surgeon meets high standards and has positive reviews, but when you’re paying a 20%-50% co-insurance, that could amount to significant savings.
  • Negotiate – Everything is negotiable, especially medical bills. You might even be able to use the info gathered above to talk your doctor and facility down in price for the procedure you need to schedule. Even if you weren’t able to negotiate a lower price in advance, you may be able to call the hospital or doctor’s office and negotiate a discount after the fact, especially if you can pay in full or put more than half down right away. I’ve heard that doing these negotiations on your bill before leaving the hospital or surgery center will get you the best results.
  • Pay Cash – Sometimes you can get an even bigger discount when you pay out of pocket instead of going through an insurance claim.
  • Care Credit – If you’re planning to put medical expenses on a credit card, ask your doctor’s office about care credit. They can call to get an authorization on your behalf, and you’ll often be given a 0% interest offer for a certain number of months. Be sure to set up auto-pay to cover the full amount of the bill before the promo period ends. You’ll also earn points for paying your bill each month, and you can trade those points in for gift cards to popular retailers. We’ve been paying down a colonoscopy, and we just cashed in on $200 worth of Home Depot gift cards.

I’m sure there are many other ways to save on medical costs, and I’d love to hear from you on what’s worked.

Today’s action step is to set up a health profile or journal for each member of your family. (If you already have one, take a quick review of it.) This health profile can be a simple binder or spiral notebook with plenty of space for printed doctors’ notes, bills/receipts for procedures, and your own notes on reactions to meds, treatments that have worked well, allergies, common symptoms to common illnesses, dates of illnesses or odd symptoms. Organize it in any way that makes sense to you and decide if you want a separate one for dental and vision care.

I was so glad I had kept dental records on my kids because I received a huge bill from our dentist after my eldest child got a filling. The insurance company denied the claim with the reasoning that the exact tooth had already been filled. I checked the dental records from our previous dentist and was able to determine that that tooth had never been filled. The last dental office had billed incorrectly.

This sounds like a lot of work, but having good records for each family member can save so much money in the long run, and it may help when trying to make tough decisions about proper treatments in the future.

Save on Utilities

Financial Freedom in 2021! Take Action: Day 14

This morning, my husband remarked that our kids are all great at turning lights on yet can’t quite figure out how to turn them off. Another friend had a similar problem with finding her backdoor open throughout the day. She said she’d start charging the kids $1 each time the door was found open. On a podcast interview a few months ago, I heard a great story told by The Budgetnista about her dad’s utility pet peeve and what he did about it. On his daughter’s designated day to buy a treat from the ice cream truck, he told his young girl that he didn’t have any money for ice cream because the water man had come by just before the ice cream truck did. He had to give the water man her ice cream money to pay for the water she had let run for several minutes.

No matter your age or background, I can pretty much guarantee that you’ve heard multiple complaints about water, electricity, and/or gas being wasted, potentially risking your family’s entire financial future. 😉

How much does it actually cost to leave a light or your TV on all night? What if you leave your cell phone plugged in after it’s fully charged or your freezer door open for a couple minutes while you ponder which ice cream flavor you’re craving most?

The answer is: Pennies.

How much does it cost when you keep the fridge door open?

These bad habits won’t break the bank, despite how often your dad may have yelled at you to shut the darn fridge before you let ALL the cold air out! Thanks to energy-saving appliances and light bulbs, our modern homes are costing less and less energy (and cash) to operate, but if you’re clinging to that “vintage” equipment, like an old stereo or TV, those will waste significantly more.

The biggest energy expense, though, is likely your air conditioning or heating, so it’s still ok for you to nag your kids about closing the back door. Check out these recommendations for keeping A/C costs down, and then read through the list below on additional ways to cut costs on electricity, cell phone service, TV streaming, and gas.

  • Get an energy audit. You can call your electricity-provider to analyze your specific home to determine where/how you can save energy and money.
  • Give away that old beer fridge in the garage. It likely sucks more energy than you think. Try moving all of your beverages inside and unplugging ye olde beer fridge for a month to see the savings. In our previous house, that one change decreased our bill by $50 per month! 😳
  • Break free of the old-school cell service contract. Try a more affordable month to month cell phone plan that operates on the same network as the big guys.
  • Eliminate bad gas… habits. 😊
  • Conduct a TV Analysis. Keep a record of all TV watched over a 2 week period. Which channels are the favorites? Which streaming service is accessed the most? Once you’ve tracked your family’s TV habits, get rid of everything not often accessed. If you’re hanging onto Netflix because there’s one show you want to binge watch, but you don’t use it much otherwise, then cancel the service. When you get a free weekend to consume all the seasons of that one show, borrow a friend’s access info or do the free trial (then set a reminder to cancel before the month is up).
  • Reduce water use. Cutting down the length of your shower by just 4 minutes can save 200-300 gallons per month. Converting to Energy Star appliances can save 20-30 gallons per wash cycle. (With an older appliance, avoid the permanent press cycle – it uses 5+ extra gallons.) Add aerators to your faucets to save around 20 gallons per day, and switch to low flow toilets to save a few gallons per flush.

Today’s action step is to look up and jot down what you spent on electricity, water, gas, cell service, and TV streaming in the months of Feb and March of 2020. Then, immediately start implementing the above changes to your utility usage. Finally, set a reminder in a few months to compare your bills from this year to last. Hopefully you’ll see a savings, and if you do, keep it up!

Save on Kids’ Activities: Get Creative with Extracurriculars

Financial Freedom in 2021! Take Action: Day 13

Gymnastics for the preschooler to help with balance. Music class for the baby to encourage language development. Soccer for the big kids to teach sportsmanship and teamwork. Riding lessons for the horse-lover. Dance camp for the tiny aspiring ballerina. Yoga or a Bible study group for Mom’s mental, physical, and spiritual health. Monthly golf games to counter Dad’s work stress. A YMCA or pool membership for the whole family to spend time together.

It’s all too much. These extracurriculars can become easily justifiable, but the expenses quickly add up. I’ve often heard friends of mine say there’s nothing that can be cut in these areas; I’ve been there before too. We’ve tried all of the above, but I needed to cut back. We were over-committed and over-spending. Plus, the kids weren’t getting as much out of every experience as I had hoped.

I quickly realized that we had to limit everything to what was providing the most value and determine which extracurriculars could wait til later. This required asking some hard questions and thinking outside the box (or even counter-culturally) for solutions.

I recommend asking the following questions before signing up for something or continuing with an extracurricular activity:

  • What’s my WHY? What’s the true reason for this membership/activity/group?
  • If I’m doing this to learn a skill, can I learn it for free from a library class, a You Tube video, a good book, or a friend?
  • If I’m doing this so my kids will learn teamwork and participation, can that be accomplished through free school activities such as UIL or PE classes already offered? Can I organize a weekly kickball game in the neighborhood?
  • If I’m doing this to make friends for myself or my kids, can I find other options such as a neighborhood bunco group or small group at a local church or a nearby parent/child playgroup? (Search Facebook or Meet Up and ask around for options.)
  • If I want to start a young child in a sport or activity that I love, can it wait until he/she is a tad bit older? Many times, we sign our kids up for something and get so disappointed when they show no interest or seem to have no idea about what’s happening. But give it a few years and that will likely change. Also, at an older age, kids can articulate what they do and don’t like about an activity, helping you determine which are truly the best options for them. Despite considering lessons as an earlier age, my eldest daughter got into music, theater, and dance once she entered middle school. Because she was old enough to know what she liked about them and was mature enough to put in the effort necessary, she learned new skills rapidly, much faster than the pace that would’ve been required had she started in elementary school with private lessons. And the middle school classes are free as a part of her school day.
  • If the extracurricular is for exercise, what are our family’s favorite options to get in free work outs? What about that class, sport, or gym truly motivates us? Can it be replicated elsewhere, including at home or in a local park?

When you determine which extras are most important to you and your family, consider the following solutions or alternatives to save money:

  • Swap hours with a friend. Maybe you can tutor her kids and she can teach sewing to you and yours. Maybe you can mow a friend’s lawn in exchange for guitar lessons for your kiddo. Maybe you and a neighbor can swap babysitting hours for kids’ swim lessons.
  • Take a You Tube class. My 5 year old occasionally asks to attend dance class. We’re not sure if she’s truly that interested in learning dance, if she likes the idea of dance because friends attend lessons, or if maybe she just wants to wear a leotard and tutu. So, we found a You Tube channel with adorable and easy-to-follow ballet lessons. When my little one is “in the mood to dance”, she goes to that channel and follows along. She’s quite good at it, but she’s not consistently interested, and this type of video lesson is enough to satisfy her for now. We’ll reassess in a year or two but save our money for the time being.
  • Offer to work. If you love your gym or yoga studio or Pilates class, can you offer to work one morning a week at the front desk in exchange for a membership or a significant discount? What if you volunteer for the sports board? Can you get a discount on registration? It doesn’t hurt to ask.
  • Skip the skills camp in the summer (for younger Rec-level kids). A week of soccer camp can cost as much as the fees for a whole season of Rec soccer. A week of dance camp is equivalent to a few months of classes. A week of horse camp can exceed the cost of 5 private lessons, and while at camp, riding time might be very limited. If you still want your kiddo in camps for summer so they can be with other children and get out of the house, I get it! Try swim team, which provides daily swim practice for 2 months and a team full of friends for a fraction of the cost of private lessons. Check out the local VBS camps in your area. Most are free. Libraries (if re-opened this year) often offer free summer camps or day programs as well.
  • Take advantage of all the extras offered when you register. Does enrollment of the gymnastics class allow you to attend open-gym days for extra practice time? Does your sports program offer additional clinics or trainings? Does the gym membership offer 2 hours of child care? (If so, then exercise for an hour and use the extra hour to catch up on work, reading, phone calls, etc.)

Today’s action step is to re-evaluate all the extras. Be sure to know WHY you’re involved in them and whether they’re worth what you’re paying. If not, cancel and try an alternative!

Reset Spending Habits with Fun Challenges

Financial Freedom in 2021! Take Action: Day 10

We’ve talked about making changes to the Big 3 expenses, but in order to reach a maximum savings rate for your family, it may be time for a (mindless) spending reset as well. I love to take on mini-challenges throughout the year to reset my spending habits and to make this financial independence journey that much more fun.

This doesn’t mean that life has to be emptied of valuable experiences or that your home has to qualify for a minimalist lifestyle website. It just means that you use a specific challenge to identify what you’re capable of and what’s most important to you. Basically, these challenges are opportunities to cut the fluff.

I propose that you engage your family (or friends) in a fun money-saving challenge at least once per quarter. Here are a few ideas:

Spend-Nothing Week: Try spending an entire week eating what’s left in your fridge and pantry and participating in free entertainment options, like game nights and hiking. After the week ends, reflect on whether you missed out on anything significant.

Free-Activities Month: What if you spent an entire summer month participating in only free activities as a family? Think beach days, picnics, bouldering, swimming in rivers and lakes, neighborhood scavenger hunts, and playground-hopping.

Purge Week: De-clutter one room per day and pull out items no longer useful to you. Think of rooms like the attic, closets, playroom, and the garage. Then, as a reward, list all of those items for sale online the following week (and donate those not worth selling). Use 25% of the money to do something really fun together and save the other 75% toward one of your priorities.

Budget Birthdays: Challenge the whole family to participate in budget birthdays for the year. Set a spending amount, such as $50 for the fun and $50 for the gifts, for each birthday celebration. Get creative in finding free locations, use hand me down decorations or items in your home for decor, and stick with homemade treats. As for gifts, try freecycle, buy-nothing sites, or consignment shops to find new-to-you items.

A Month of Eating In: Can you do it? Can you make it a whole month without fast food, your favorite take-out, or a night out at a restaurant? You can do anything for 30 days, right? It would be a great challenge for a reset, and when the month is over, you’ll think twice before just grabbing a dinner that’s convenient rather than saving the money and the extra calories. You might also get pretty savvy in your own kitchen and make use of what you have already in your pantry.

Vacation for <$500: Challenge yourself to plan a family vacation for under $500. You can do it even without tent-camping. Stay tuned for tips on frugal travel.

Today’s action step is to commit to a few challenges this year. Get out your planner and write them in.

When a challenge ends, reflect on what you learned from it. How much money did you save? Did you identify anything you really missed out on and want to make a priority in the future? Did you identify things that you’ve been spending on that really aren’t that important? Was the challenge fun or stressful? Are you ready to do another one?

Save on Groceries

Financial Freedom in 2021! Take Action: Day 9

Food is the third largest expense for most households, especially if you have growing children or pets in that house. A family of 4 in the US spends around $700 – $1000 per month. When I first started tracking our spending, I discovered that our family of 6 was spending close to $1500 per month on groceries and eating out. Woah! That’s a lot of money!

Thankfully, I quickly found ways to reduce our food expenses, starting with grocery shopping. The following tips show how our family dropped our monthly grocery bill from around $1200/month to $800/month. We’d like to get that down much further, so we continue to try to find ways to cut back although we do not have discount grocery stores in our area.

  1. Ask yourself whether you HAVE TO go. One of the best ways to save money on groceries is simply to go to the store less often because once you’re there, you know you’re going to buy something else … and another something else… and another. I get it if you have a sick child and ran out of his medication or if you need more baby formula. However, many of our *quick* grocery store runs are for want items as opposed to need items. Can you make a slight change to tonight’s recipe so that you can go without a certain ingredient? Can you bring a different dish to the potluck than what you had originally planned? Can you make pancakes or muffins rather than instantly replacing a favorite cereal? Find ways to eliminate those in-between trips, and you’ll spend significantly less.
  2. Take Inventory. As I mentioned in a previous post, making note of what you already have in your fridge or pantry and determining how best to use them in the weeks ahead will prevent you from buying duplicates or even substitutes when at the store. Know what you have and don’t buy more (unless there’s a deal really worth stocking up on).
  3. Don’t bring the kids. Easier said than done, I know. However, kids can make you stressed… stress makes you cave to convenience… and convenience costs cash. If you are able to change habits and go to the grocery store less often, you most likely can find an hour each week or a little longer every other week to go alone. It’s glorious. And necessary.
  4. Know when your store sets out clearance items. I called my local grocery store and asked what time they set out clearance items daily. At the Dripping Springs HEB, they stock those specific shelves between 6 and 7 am. Eek! That’s not even close to my usual shopping time, but I still always check the racks because I have found so many items I would’ve bought anyway marked way, way down. If your store doesn’t have a clearance rack, maybe they mark down soon-to-expire meats or day-old bread at certain times of the day. A quick phone call or short visit with a manager is all it takes to get the inside scoop.
  5. Keep your grocery list generic and shop the sales. This brilliant idea came from a podcast featuring the Saving Sherpa on Bigger Pockets Money Episode #75, during which Justin shared how low his grocery bill can go. It is completely unrealistic for me to feed a family of 6 on $15/week, which is his personal budget, but hearing how he shopped was pretty inspiring. Instead of planning very specific meals with very specific ingredients, his list remained generic so that he could shop based on sale prices, seasonal produce, and in-store coupons. His list might read “Protein, Fruits, Vegetables, Lunchmeat, Fillers (i.e. rice, potatoes, bread, tortillas), Snacks, and Yogurts”. The most important aspect of this idea is to break habits and buy based on value, not based on routine or rigid meal plans.
  6. Before you grab an item from the shelf, ask if it’s something you can make from scratch at home. If frozen waffles aren’t on sale this week, can you make extra waffles on Saturday morning and freeze them for later in the week? You can ask this same question when shopping for granola bars/balls, cookies, rice krispie treats, muffins, frozen pizza, sweetened coffee creamer, bagged popcorn, chex mix, lunchables, veggie trays, fruit salad, jars of soup, pre-made/frozen meals, and so on. Not only is it usually cheaper to make something with scratch ingredients, but it’s a lot healthier too.
  7. Make the most of store coupons and apps. Use your local grocery store app to save money on groceries. I’m a big fan of HEB… everyone in Texas is! And with the featured HEB digital coupons, I’m an even bigger fan. HEB is already known for their in-store yellow coupons and their weekly meal deals, but the app offers additional featured coupons and even sends users freebies every once in a while. If you add a cash-back app, such as Ibotta (enter referral code “wpcrvpk” pretty please), you can even double up on some coupons or on other items you bought. In fact, there have been many, many times that I’ve saved using an in-store coupon and then received additional money back from Ibotta on the same product. Ibotta pays you back on specific grocery items listed in their app, and it changes weekly, but it also has “any item” options that will earn you some money back for simply redeeming a receipt or buying bananas. All you have to do is select the items you purchased, take a picture of your receipt, and cash in. I’ve earned over $200 since I joined in Oct of 2019.
  8. Know what to buy when. Usually, vegetables and fruit are cheaper when in season. This guide might help you to determine whether now is the time to stock up on berries or whether you should wait until a different season of the year. Also included below is a guide of which fruits and vegetables freeze the best so you can stock up when they’re on sale.

To take action today, listen to the podcast mentioned above and download the Ibotta app. Also, go to your pantry and fridge to check out what foods you’re stocked up on. Come up with at least 5 meals you can make from what you already have. Then, calculate what the cost is for each of those meals. Set a goal for meal costs in your home. We aim for $2/person for homemade dinners.

Then, when it’s time to go to the store again, download your grocery store app and check what’s on sale or what coupons are offered. Make your list and your meal plan starting with those sales.

Change your Mindset

Financial Freedom in 2021! Take Action: Day 6

Most of the books I’ve read and podcasts I’ve listened to have taught brilliant and reproducible finance strategies, but more importantly, they’ve taught me even more about mindset. I’ve encountered atomic habit techniques, ways to dream big, encouragement to think a million and to become a millionaire next door, motivation to live frugally, as well as reminders to walk my own path. Every story I’ve read about someone else’s struggles and/or successes has led to more motivation to stay the course toward my own financial freedom.

However, it can be easy to slip back into old habits and a keeping-up-with-the-joneses mindset without regular reminders of why this path is important and possible. Here are a few money truths that I choose to focus on:

  • You only see what people spend, not what they save. Wealth is based on savings, so those who spend the most may not be the ones I should model my habits after.
  • NOT investing is riskier than investing.
  • The things in life that bring the greatest joy are usually free.
  • Comparison is the thief of joy.
  • My family has far more than we could ever need to live a happy, healthy life.

Beyond all of these reminders, I’ve found that the biggest factor in changing my mindset from a spender to a saver, from a hoarder to a giver, and from helpless to capable is daily gratitude. To take action today, write down 10 things you are grateful for and 10 things that bring you joy. Then, reflect on the following questions:

1. What would your perfect day look like?

2. How much money would you need to participate in the 10 things that bring you joy and/or your perfect day?

3. What percentage of clothes in your closet do you wear regularly? What percentage of dishes in your cabinets do you use regularly? Percentage of toys? Tools? Do you really *need* more?

4. Who do you compare yourself to most frequently and why? Are you envious of their spending habits? What intrigues you the most?

5. What activities do you participate in or items do you buy for the primary purpose of posting on social media?

6. What percentage of your income are you giving to charity? Does that contribution match your heart/desire for giving?

7. Think of the last 5 non-essential, non-gift items or services you bought? Did any of them relate to your list of 10 things that bring you joy? Did any of the purchases help you get closer to reaching your personal goals or contribute to your list of priorities from day 2?

8. How much food do you throw away per week? Check out these statistics on food waste and how we can all reduce our impact.

9. Do you have a net worth of at least $100,000 (Assets – Liabilities > $100,000)? If so, did you know that you’re in the wealthiest 10% of the world?!

10. Would any of your relationships change if you lived a life of less… less spending, less waste, less participation in expensive activities, less debt, etc? How and why?

Your answers to these questions might help you determine whether you’re ready to make a mindset shift toward financial freedom. If so, it’s time to get creative with saving! Check out these ideas to motivate yourself to save rather than spend: AMP Up Your Savings!

If you’d like even more resources to help with mindset and strategies, check out what Frugal with Four recommends.

Start a New Monthly Budget

Financial Freedom in 2021! Take Action: Day 5

After completing your annual budget yesterday, you should have an amount remaining between your net income and your fixed/priority expenses. If there is not a livable amount (for the year) leftover, some of those priorities may have to have deadlines that extend into later years or may need to be removed temporarily.

In the example shown yesterday, there was $20,420 remaining for monthly spending. That comes out to approximately $1,700/month, which may seem minimal if you are raising a family. However, keep in mind that this does not include major living and transportation expenses, monthly savings, investment contributions, or amounts budgeted for other top priorities. Therefore, the amount *leftover* is for variable expenses of food, gas, utilities, entertainment, electronics, clothing, gifts, and extracurriculars. It may still present a challenge, but that’s what we’re here for, right?

You can use the same “Personal Budget” spreadsheet or any budgeting app to set up your monthly budget with the amount you’ve calculated from your annual budget cash balance. Divide the total by 12 and set that as your “income” for the month in your budget. Then, estimate how much you will spend in each of the categories listed in the paragraph above. Practice zero-based budgeting to the best of your abilities.

After establishing your monthly budget, plan to track your spending via your bank app or receipts and then give yourself some grace. It may take a few months to get the estimates correct, and you may encounter some setbacks. The good news is that setbacks don’t actually set you back financially if you’ve been saving for emergencies and if you are committed to getting on track the following month. Once you have a system for monthly budgeting, you can become an expert in a matter of a few months, and this process will take less and less time.

One thing we try to do with regards to monthly budgeting is to start the following month indebted to the previous one IF we over-spent in variable spending categories, but we also pay ourselves the surplus (in the next month’s planning) if we come in under-budget for a month.

This budgeting process has become a fun ritual for my husband and me because we turn our discussions into monthly money dates! It can actually be fun. 😉

Create an Annual Budget

Financial Freedom in 2021! Take Action: Day 4

This step is less intimidating than it sounds, but it does require knowledge of your fixed expenses and your list of priorities with their totals from yesterday’s post. This budget can be in any format that you’re comfortable with: a spreadsheet, an app, a sheet of paper. I prefer the “Personal Budget” template in Microsoft Excel; it’s formatted for a monthly budget but can be altered to enter amounts for annual income and expenses. I’ve also added a column for “Actual” expenses on my spreadsheet, in addition to “Budgeted”, so I can track our exact spending in each category. I’m sure there are *smarter* ways to keep track of everything, but Excel spreadsheets work for me, so I’m sticking with them. All you really need is a format that allows you to list your annual expenses and subtract those from your net income.

When making this list of annual expenses, think of those that are fixed and can be predicted for the year. Some of these expenses include mortgage or rent payments, property tax estimates, home owner’s insurance, car insurance, other insurances, a regular medical expense such as contacts or prescriptions drugs, car payments, annual subscriptions such as Costco or Amazon Prime, and tithing. After recording those fixed expenses, add lines for your priorities, such as an emergency fund, monthly investing, travel plans, and/or a big purchase. I like to include these in our annual budget so that when I’m preparing our monthly budgets, I use what’s leftover to plan our variable spending. I want the fixed expenses and our savings priorities set aside before we even begin our monthly spending on groceries, experiences, gas, clothing, etc.

Below is an example of what an annual budget might look like. The “Cash Balance” remaining is what will be used for monthly budgeting tomorrow.