Gaining financial purpose: Tim’s Tips

Finances can often be kept private in our culture. Maybe because it’s embarrassing seeing the ninety-four dollars and thirty-two cents in your savings account, or– on the other extreme– you don’t want people knowing you have one hundred forty thousand dollars in your savings. Either way, money can be a source of stress for so many, especially university students.

As the up and coming generation, what can we do to succeed financially so as to support ourselves and our future, but still have a little bit of fun here and there? What is financial freedom anyway? Being rich? Having no money problems? NO! It’s all about implementing financial purpose. Freedom isn’t gained through anarchy in our finances, it’s achieved through careful, committed, and creative implementation of personal financial strategy. Here are four quick tips to begin living with financial purpose in order to achieve financial freedom.

In my last article, “What to Expect When Buying Your First Home,” I discussed the need for a large sum of money before buying a home. The exciting and financially sound ideal of buying real estate is often screeched to a halt when you don’t have what it takes for a down payment (minimum 5%, but ideally 20% of the purchase price). Currently, that is the reality for many young people. So, how do we set ourselves up for financial success?

Step 1: Don’t take on unnecessary debt
If you can’t afford it, you can’t buy it. Seems somewhat elementary, but today the concept ‘debt free’ has been thrown out the window. Your thought is “I really want these shoes,” and your excuse is “I only have a little bit of credit card debt, it’s not that steep yet.” This kind of language signals looming financial disaster. Rarely do things fall into your lap; sacrifices must be made in order to have financial freedom. Biking to work, carpooling with friends, even taking transit. If you can’t afford it, let it go. Don’t max out your credit card, take out a line of credit, or call Mom and Dad for a loan.

If using your credit card is becoming a serious problem for you, cut it up, freeze it in an ice block in your freezer, or just give it to someone you trust to keep you safe from overspending.

That being said, there are cases in which having debt is okay, such as buying a personal residence, buying a car (sometimes the financial benefits of a new car will outweigh keeping an old one), or buying an investment property.

Step 2: Analyze your current financial state.
Knowing what you make and spend each month is equally as important as staying out of debt. If you don’t know your spending habits, you won’t know where to start getting things under control. Whether you keep the receipts from each purchase and transfer them to an excel sheet, or you use your online banking app to keep track, find out exactly how much you spend (and on what) every month. Once you know those numbers, compile all your income statements from the year and find your monthly average income and your lowest monthly income. From there, subtract the monthly expense average from your calculated monthly income. If you are close to spending all your money, or you spend it all and then some, it’s time to reshape your financial landscape. For those who are living with a healthy cushion, it’s always a good idea to re-asses your situation as well.

Step 3: Goal Setting
This is really where financial purpose begins to come to fruition. The groundwork has been done, now the real fun begins. Now you can look at your numbers from above and start defining realistic financial goals. These might look like saving 20% of my monthly income (also known as the Joseph Principle), give 15% of my income every month to friends in need, or, more specifically, save $2000 by June 1, 2017.

Ensure your financial goals are SMART: Specific, Measurable, Attainable, Realistic, Time-Based. If they aren’t they will begin to seem irrelevant and you will lose sight of the long-term goal: financial freedom.

Step 4: The Almighty Budget
Using your goals and your analysis of your finances, budget out your fixed expenses first and then your variable expenses with the remaining amount. Break everything into specific categories: insurance, rent, gas, eating out, etc. My personal philosophy is to start with a 20% monthly savings minimum and see that as untouchable money that goes away to provide for your future.

To organize your budget, you can use apps such as Mint or Wally on your smartphone, or you can use cash in different envelopes marked for specific spending budgets. When you run out of money in the envelope you no longer have any money to spend in that category. That is a great way to break the habit if you are struggling with overspending.

Of course, there are many ways of going about your financial success but these four steps are essential in anyone’s journey to financial freedom. Financial freedom can only be gained through financial purpose: purposeful and strategic actions that, over time, become a systematic success. Financial freedom isn’t the end goal, it’s the entire process that allows you to live without your finances controlling everything you can’t do. Instead, you let your finances empower you in what you can do!