Reach Your Financial Freedom In 5 Easy Steps
If you’ve ever wondered, “where does all my money go?”
Then you’re definitely not alone. In fact, 33% of Americans admit to not having a budget.
This means that at least 1 in 3 people have no idea how much money they spend.
Maybe you feel as if you’ve lost control of all your money.
And now, you’re at a point where you don’t know where to turn.
If you feel this way, then I’ve got some great news for you.
If you’ve asked yourself “where’s all my money going?” Then you’re asking the right question.
By asking this question, you led yourself here. And I’m here to help you answer your question, so you can finally take control of your money.
So let’s take a step back and dig deeper into this question. Not knowing where your money goes means that you’re not tracking it.
In other ways, you’re not measuring how you spend your money.
And what doesn’t get measured, doesn’t get managed. So if you want to manage your money, you can start by tracking it.
So here are Your 5 Steps To Financial Freedom.
Your 5 Steps To Financial Freedom
1. Track Your Money
Now, you might be thinking to yourself, if it’s that easy to know where my money goes, I would’ve done it years ago!
Well, please hear me out.
You’re absolutely right. Tracking money on your own would be difficult. Except now, we have Apps that do this for you… Like Intuit’s Mint App.
Think of this App as a financial mirror. It’ll show you how you look financially. Without a mirror, you won’t know what shape you’re in.
Whatever amount of income you bring in, it will reflect it. Wherever you spend your money, it will show you.
Mint automatically links to your bank accounts. Then it displays your income and expenses in real-time.
Do you hate making graphs and charts? Then you’ll love Mint.
You can see your income and expenses on simple charts and graphs that you understand, and that you don’t have to make yourself.
You even get access to your monthly net cash flow.
What’s a net cash flow?
It’s simply the difference between cash coming in and cash going out of your accounts. Best of all, you don’t have to calculate any of this. Mint does all this for you!
You can see the difference between your income and spending. If you save more than you spend, then you’ll have a positive cash flow, displayed in green.
On the other hand…
If you spend more than you make, you’ll have a negative cash flow, displayed in Red.
And if you’re wondering why your bank account is so tiny, Mint will show you why.
You can also get access to your monthly spending reports, all categorized on a simple pie chart. You’ll see a quick snapshot of where most of your money goes.
After you figure out where your money goes, it’s time to change your spending habits.
2. Work On Your Habits
Depending on the severity of your spending habits, this process might seem unbearable for some of you.
Some of your spending habits might stem from lifelong addictions. And if that’s the case, I highly recommend getting professional help. I recommend 12-Step Programs, counseling, and even spiritual help.
Addictions can ruin a person’s life in every aspect.
They can ruin your health, wealth, and relationships. If you’re suffering from addiction, financial help will never be enough… Why?
Because your finances are just symptoms that reflect your behavior. They’re just results created by your habits.
Without a deep change within yourself, you’ll keep digging yourself into the same hole that you fell in. Even if you don’t suffer from lifelong addictions, the concept behind controlling your spending still remains the same.
Your life is, and will always be a byproduct of your habits. How you do financially stems from your actions. But without self-awareness, your habits go unnoticed.
Review your monthly expenses. You might see patterns in your spending. Use them as a clue to discover the habits that are robbing your wealth.
After you’ve gone through your expenses, it’s now time to categorize them.
Let me show you how.
3. Categorize Your Expenses
Before you decide what to cut out of your budget, first begin by categorizing.
Keep it simple and divide them into two categories.
When you have your expenses organized, it makes goal setting as easy as pie.
Necessities Vs. Luxuries
Start with necessities since they will be the easiest to identify.
Depending on your lifestyle, your necessities will be different.
But generally, there’s rent, utilities, insurance, transportation, and food. And what about everything else that’s not named rent, food, and transportation? That’s what you call luxuries.
So here’s your list:
- Rent & Utilities
- Everything except Rent & Utilities, Insurance, Food, and Transportation
Getting rid of all your luxuries might sting at first. Especially if you’ve become accustomed to your lifestyle.
Even if you don’t live lavishly, your money finds a way to wiggle its way out of your account.
That small latte you buy every day might not seem like a big deal. After all, how much can a $3 cup of coffee hurt anyway?
Well just think of it as dying by a thousand tiny cuts over a long time.
This is what’s called the Latte Factor.
So what exactly is the Latte Factor? Let’s take a deeper look.
4. Find Your Latte Factor
The Latte Factor was first coined by Financial Author, David Bach. You may have seen him on Oprah. He came up with this concept from one of America’s favorite pastimes. Buying a cup of coffee from Starbucks.
A $3.50 coffee by itself can’t hurt your wallet. But if it’s a daily habit, it can multiply into hundreds of cups in just a few months.
Let’s just say that you buy coffee only during the weekday. This means that you buy on average, 5 cups of coffee every week.
And since there are 52 weeks in a year, the equation would be:
5 x 52 = 260 Cups
That’s 260 Cups of coffee a year… Assuming you don’t drink coffee during the weekends.
This totals up to $3.50 x 260 = $910 per year.
To put it into context, this would be worth about 3 years worth of gym memberships at LA Fitness.
Or how about this? You can buy a brand new iPhone 12.
And if you’re in debt, you can even pay down your debt faster.
The results are even more shocking when you invest this money.
If you invest the $910 into an S&P 500 Index Fund, you would’ve gotten an average return of 9.8%. This means in a year, your $910 investment would’ve grown to $999.18.
You might not have a coffee addiction that 150 million other Americans have, but we all have our own “latte factors.” This concept can be applied to anything that you buy regularly.
It can even be money spent on mobile gaming. Or even buying a soda from a vending machine.
I’m not at all against grabbing a cup of coffee from your favorite shop once in a while. But making it a daily habit has severe consequences.
It’s so subtle that you won’t realize it right away. But when you wake up at age 60 with no money left for retirement… You’ll feel the consequence of the latte effect in full force. But by then, it’ll be too late to undo the damage.
If you want more detailed information on this topic, you should pick up David Bach’s book, The Latte Factor.
He demystifies the process of becoming a millionaire by the time you retire. By the time you finish this book, you’ll have a solid plan in place for financial freedom.
Now that you know your latte factor, it’s time to stick to a budget.
Without a budget, you’ll easily get off track. And it won’t be long until you revert back to your old spending habits.
5. Commit To Your Budget
You might still think that you can buy more happiness with money. But here’s the truth. You’ll be much happier once you live debt-free.
Maybe you think that owning more things and spending your money gives you more freedom. There’s no doubt that there’s excitement in buying new things. But if you’re living above your means, you’re enslaving yourself to debt.
So how do you budget? It’s very simple. First, you plan out what you need to spend your money for the month to survive.
This means you estimate how much money you’ll spend on gas, food, rent, utilities, phone bill, and insurance. Since most of these expenses reoccur in the same amount, it should be easy to make accurate estimates.
The only expense that might be tricky is food. If you have the habit of eating out all the time, you should consider switching to more home-cooked meals. Make sure to make a shopping list or even shop for groceries online.
This way, you can prevent yourself from spending more than you planned. I’m sure you’ve shopped for groceries when you’re hungry. You end up grabbing way more food than you need… every time.
If you have the habit of making unplanned purchases, it’s time to set some boundaries. No more unplanned shopping unless it’s an emergency.
But, if you catch yourself going back to your old shopping habits, ask yourself these three questions:
- Do I need this for survival?
- What’s happens if I didn’t have this now?
- How much would I have left in my budget if I made this purchase?
If these questions are too long for you to remember, write them down on a small paper. Then tuck it inside your wallet where you hold your credit cards.
I know this might seem extreme, but that’s what it takes to break a stubborn habit.
At first, it’ll feel uncomfortable and unnatural, but if you do this enough, it’ll become your new normal. You’ll become responsible with your money. If you keep this habit over a long time, you’ll actually build wealth like you never have before.
Seeing your bank account grow will encourage you to save more money. Just imagine how accomplished you’ll feel knowing that you’re getting wealthier over time. Instead of fearing your future, you’ll create a life worth looking forward to.
Life-Changing Financial Habits
Think of budgeting and saving money as small, but life-altering habits. It’s like washing your hands or brushing your teeth every day. They’re small actions that lead to big results. If you didn’t do those things, your health and hygiene would be in serious jeopardy.
The same is true for budgeting. If you continue to spend more money than you make, you’ll never build wealth, let alone have enough saved to retire. If you commit yourself to save just a little of your income every day, you will accumulate wealth.
So what are you waiting for? Download the Mint App now and start saving. It’s never too late to build wealth, but it’s always too late to wait.