The (long) road to financial freedom: Week three
“Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.”
In today’s blog post I’m going to do something a little different. I’m going to do a little update about how my journey is going and then we’re going to delve into some of the information that is out there on the internet about financial independence and emotional spending. And there is a lot. Quick disclaimer: I am not a financial expert. I am a person with financial experience, professionally and personally through trying to manage my money. But my financial work experience is as an accountant not as someone focused on financial advice, debt reduction etc. So I’m sharing my thoughts mainly from my personal perspective.
Since the last blog post I have successfully not bought any books or clothes. Yay! It sounds like a small thing, but these are my big go tos for comfort spending. I have looked at some clothes, even created a wish list but that’s for a future time, not for now. Actually, doing that bit of the shopping did give some satisfaction and I didn’t have to hand over my hard-earned money. I’m counting this as a success.
Another success is being more organized with meal prepping which has meant less cost of buying lunch last minute, which is more costly. I’ve been planning and making a meal for dinner with leftovers for lunch the next day. And I’ve been using up the ingredients in my fridge. I hate to say my wastage of food had been quite high previously as things would go out of date before they were used due to poor planning. This has been good on many levels – for my finances, for the environment and for my diet. And I use diet here in the nutritional sense not necessary as weight loss.
Overall, I’m feeling good about how it’s going. This month I’ve still had a buffer of extra income although that has mostly gone on my car insurance renewal and my debt management plan payment for the month which isn’t reducing until the end of the month payment. Next month is going to be the first month on my reduced wages so we shall see how that goes. I feel pleased with myself for sticking to my goal and for taking more control of my situation. I had been burying my head in the sand and that is not a recipe for success. At all. It may be difficult to face up to the reality of the situation, but if you do then you know what you are dealing with. I think the unknown is far worse. By becoming aware the fear lessens and you have a sense of having achieved something, just by facing up to what is going on.
Perhaps you’re reading this and are thinking about starting your own journey towards financial freedom, financial independence. But what does that mean? It means being in control of your finances and having freedom to make choices. By being more in control of your finances, money has less control over you. Particularly over what you can’t do. You may be worried that being more conscious of your finances, more frugal even, will take away from your quality of life but actually it adds something more valuable. It gives you freedom. And that’s priceless.
If you search for ‘financial independence’, there are a huge number of results and the advice tends to be consistent (I’ve checked!). So what are the steps to taking control? I’m going to break them down into some mindset shifting steps that I believe are crucial to tackle first and then some practical tips.
“The mind is just like a muscle – the more you exercise it, the stronger it gets and the more it can expand.”
Mindset shifts
Firstly, you need to be willing to commit to making changes. Often people don’t achieve their goals (in any area of life) because they are afraid of the changes they need to make in order to achieve it. But if you want to change your life, you have to change. Ask yourself why you want financial independence. What does it mean to you? Discover your why and write it down somewhere to remind yourself frequently. It may be tough at times so having a reminder of why you’re doing this can be so helpful.
Review your current situation. Look back through six months of statements to see where your money is going. This awareness will help you plan realistic changes and identify where you can cut costs. This is tough as you’re coming face to face with the reality of your spending habits, but hard as it is this is so necessary.
It’s also worth thinking about who you surround yourself with. Our friends and family help shape our attitudes so if you have friends who are careless with their money (i.e. old me) then this may rub off on you. Perhaps you can encourage them to join you on this journey too? Having an accountability partner and supporting each other could help you both stay committed.
Lastly, on the point of commitment. Getting on top of debts, getting your finances in control may feel like a temporary thing. But once you’ve achieved a level of control and independence, what happens then? If you slip back in to your old patterns of behaviour then you may end up back where you are now. I know, I’ve done that a few times. Why? Because I didn’t really commit to making changes long term. You have to commit to living within your means. For life.
Now you’ve got your head in the game, how do you actually get your finances under control?
“Tell me, what is it you plan to do with your one wild and precious life?”
Practical Steps
Make a detailed plan. This should have a series of steps taking you towards your goals. It has to be realistic so that you can actually follow it but it will have some changes in. Remember, if you want to change you have to change. Include in your plan when you are going to review it as in 6 months your situation may have changed significantly and you may have different goals.
Create a budget. What is your income? What are your monthly costs? This may be a good time to try and reduce some of your bills. Can you renegotiate a contract or change to a different provider?
Track your spending. There is no use having a budget if you don’t follow it. How will you know if you’re following it? By tracking your spending. By keeping an eye on where your money is going you should be able to spot where you are drifting away from the budget and the plan. Now, there may be times when that is necessary. An unexpected bill for example. But if you’ve created a realistic budget, you should be able to stay within it.
Reduce debts – there is a lot of information available online about how to reduce debts. If you are struggling or don’t know where to begin I would definitely recommend talking to Citizens Advice (CAB) or a specialist advice agency. I spoke to CAB and now use Payplan for my debt management plan (DMP). They gave me great advice and made me feel more in control. The usual tips on reducing debt are making extra payments if you can, repaying highest interest debts first, transferring debts to a lower interest card if possible, and snowballing. This means paying more off on one debt first, usually higher interest, so that it is completely cleared. You can then pay more on the next one and so on. Once a debt is cleared you are no longer paying interest. As I have a DMP I’ve not been able to try this but I hear it is a really effective approach.
Emergency fund. This one comes up a lot. Would you be able to afford something unexpected coming up? A vets bill or car repair bill? Honestly, I wouldn’t. I don’t have an emergency fund. But this is something on my plan to put in place. We don’t know what is going to happen but having a buffer gives some peace of mind.
Savings – even if you don’t have much money, can you put away a small amount each month? Perhaps you can round up change when you use your card and save this (I know Lloyds bank has this because I use it). I put away a small amount each month, very small, into a moneybox account. It’s a help to buy ISA so I can’t access it and I feel like I’m taking steps, no matter how small, towards my home owning goal.
There is a lot of advice about investing as another step to gaining financial independence. Personally, my priorities are clearing my debts first and foremost and then building up my emergency fund, repairing my credit rating and saving for a house. Investment, diversifying investments are something for me to consider at another time when I have more financial stability. But they may be right for you to explore.
The last thing I want to leave with you is some of the tips I’ve found for making more money or cutting costs. You may be able to think of more of your own and I’d love for you to share them if you do!
Sell unwanted items – ebay, amazon, car boot sale. If you’re not using it and it’s just taking up space, why not sell it?
Use cash – there’s something more real to using physical money rather than just tapping a card. You could take out cash at the beginning of the month/each week and divide out money for each category of spending. Once it’s gone, it’s gone.
No spend days – you could try having days or even a week when you don’t spend anything. Stock up the fridge with food, fuel the car and then don’t spend anything else.
Cook at home – cut down on buying meals out or just grabbing lunch. It is more affordable to cook at home. Maybe have friends over to you for dinner rather than going out?
Cancel unused subscriptions – do you have a gym membership you don’t use? Maybe a streaming subscription but there’s never anything good on there you want to watch. It might be worth cancelling it. I have Netflix and we do use it. You want to enjoy life still so if you are using it and it’s worth it to you then maybe it should stay.
Hopefully you’ve found some of this useful. As I’ve said there is a lot of information available and I’ve given you a lot here. Not everything will work for you. But I would definitely recommend planning and tracking as important to staying in control of your spending. And obviously the mindset piece, because mindset is my thing.
“A goal without a plan is just a wish.”
Next week I’ll be talking about emotional spending. This is the big one to dive into. We could make the commitment to ourselves, figure out our why and really want it but still not achieve it. Emotional spending is a powerful crutch and can be hard to let go of. It’s a big one. I have a lot of personal experience of this so stay tuned for that.
Have a great week.
Hannah x
References
Rose, J. (2016) The 15 crucial steps needed to achieve financial independence, Available from [https://www.forbes.com/sites/jrose/2016/03/25/financial-independence/#61e6e6cf984b] Accessed [21/01/20]
Sadler, A. T. (2017) 40 things you can do today to take control of your finances, Available from [https://clark.com/personal-finance-credit/easy-ways-to-improve-your-finances-today/] Accessed [21/01/20]
