Financial Freedom: 5 Difficult Steps to Get Out of Debt, Create a Simple Budget, Plan for the Future, and Regain Control of Your Finances
Money. It tears families apart, ruins marriages, and keeps people from pursuing their dreams. Money troubles inject unnecessary stress, anxiety, and arguments into our daily lives, which keeps us in perpetual discontent. We never seem to have enough, and, living paycheck to paycheck, we can’t ever get ahead.
But it doesn’t have to be this way.
We—Joshua & Ryan—know first hand. The road to financial freedom was a long trek for both us. Even though we had prestigious six-figure careers, we struggled with money back then; and we weren’t financially free for a long time. In fact, it wasn’t until we walked away from those career’s (after devising a plan, of course) that we discovered how to get out of debt, how to eliminate unnecessary expenses, how to plan for our future, how to master our finances.
While we all need to make money to live—and there’s certainly nothing wrong with earning a great salary—taking control of your financial life involves much more than adjusting your income upward. It involves making repeated good decisions with the resources you have, changing your financial habits, and living deliberately. None of which is inherently easy—especially under the tyranny of today’s instant-gratification culture—but fortunately, regaining control of your finances is simple.
A few years ago, overwhelmed by money’s rapacious tug on our lives, the two of us decided to change; we decided to take back control of our finances and our lives. These are the five steps we took, and they are the same principles we use today to ensure that we’ll never again struggle with money.
Most of us have no idea where our money is going. We think we know, but we don’t really know. This is doubly true for those of us who are married or live with a significant other. Ergo, the first step toward financial freedom is establishing a written monthly budget. Note the three key words here: written, monthly, and budget.
A few guidelines:
Categories. Identify what’s truly necessary by identifying all of your monthly expenses based on the past six months, and then divide your expenses into three categories: Need, Want, Like. Write down every expense (food, housing, utilities, insurance, cars, gas, transportation, clothes, credit cards, phones, Internet, pets, entertainment, etc.); triple-check the list with your significant other or a friend; and then use your Need, Want, Like categories to prioritize and cut wherever you can. The stricter you are, the sooner you’ll be free.
Boundaries. Give every dollar a destination at the beginning of the month. By establishing these boundaries, you won’t worry about what you can and can’t purchase because money that wasn’t assigned at the beginning of the month can’t be spent mid-month.
Teamwork. Everyone in your household—even your children—must have a say in the written budget. This is the only way to get every person’s buy-in. Working together means taking from one category to fund another (e.g., extracting money from, say, your clothing budget to fund your entertainment budget) until each person is on the same page. Once everybody is on board—once everyone is committed to financial freedom—it is much easier to gain the traction you need.
Adjust. You’ll have some slip-ups along the way. That’s all right, it’s part of the process. At first, you and your family should scrutinize your written budget daily, and then eventually weekly, adjusting accordingly until your whole family is comfortable with your set monthly allocations. The first month is the most difficult, but by the third month you’ll curse yourself for wasting so much money during your budget-less days.
Safety. Shit happens, so it’s best to create a Safety Net savings account with $500–$1000 for emergencies. Now listen: do not touch this money unless there is a true emergency (car repairs, medical bills, job loss, etc.). Your Safety Net will allow you to stay on budget even when life punches you in the face. Over time, once you’re out of debt (step 3 below), your Safety Net will grow to include several months of income. But for now, worry only about the first $500–$1000 to start, which you’ll want to keep in a separate Safety Net account to avoid temptation (more on that below).
Most of us hear the word invest and we panic. Investing seems so complicated, so abstruse, so not-something-I-can-wrap-my-head-around. Well, instead of thinking of it as investing money, think of it as paying your future self. And with today’s online tools, you needn’t be overwhelmed—investing is easier than ever. Anyone can (and must) do it.
As for Joshua & Ryan, we both use an online-investment tool called Betterment as our personal savings, planning, and investing software. Using Betterment, which costs nothing to set-up and has no minimum-balance requirements, we’ve learned how to invest in our future selves by setting aside a percentage of our income without even noticing it’s gone.
We also keep our Safety Nets in our Betterment accounts. We do this for two reasons: 1) the money is liquid, which means we have instant access to our Safety Net if we need it, and 2) when the money is sitting in a separate account, it is less tempting to access than if it’s in our bank accounts (plus it earns a better interest rate in a safe, conservative way).
We invest our money into four separate buckets using Betterment’s online software: Safety Net, Retirement Fund, House Fund, and Wealth-Building Fund. (For complete details, see our Retirement Planning article, in which we we break down how we, as minimalists, plan for retirement and other financial objectives, using screenshots and real-world examples, including statistics and personal figures.)
Right now is the best time to start planning for your future. Whether you’re planning for retirement, wanting to start a business, saving for a home, building a larger Safety Net, or focusing on long-term wealth-building, now is the best time to begin. Not next week, not even tomorrow, today. Even if you have no money to invest, you must devise a plan to begin investing in your future self. The best way to do this is to automate your investments using an online service like Betterment, which takes the guesswork out of investing. The future won’t wait. Do it today. Even if that means 1% of your income, or even $20 a month, to start. Your future self will thank you.
Contrary to what some academics might tell you, there is no such thing as “good debt.” Let’s say that again (read it out loud): THERE IS NO SUCH THING AS GOOD DEBT. True, some debt is worse than other debt, but it’s never “good.”
The truth is: you will not feel free until you are debt-free. The debtor is always slave to the lender. Besides, it’s feels pretty amazing to have no car payments, no credit-card payments, and no student-loan payments looming in the shadows of your lifestyle.
Throughout our twenties we both had excessive piles of debt—more than six-figures each. It was a debilitating feeling—a complete loss of freedom.
Although there are no magic bullets, the strategy we’ve seen work best is Dave Ramsey’s Total Money Makeover, a detailed, step-by-step formula that both of us used to create a detailed plan, cut-up our credit cards, and face our debts head-on. Also read: Debt-Free: JFM’s Story of Overcoming Debt.
Of course minimalism was a key component in our own journeys toward financial freedom. By clearing the clutter from our lives, we were able to focus on eliminating debt, changing our habits, and making better decisions with fewer resources.
We also learned that by simplifying—by identifying which material possessions weren’t adding value to our lives—we were able to more quickly become debt-free by selling more than half our stuff locally (yard sales, consignment shops, flea markets) and online (eBay, Craigslist, Autotrader).
No, minimalism is not about deprivation—we don’t want anyone to “live without” in the name of minimalism—but sometimes it makes sense to temporarily deprive ourselves of ephemeral satisfactions when we are attempting to move our lives in a better direction.
For example, as we were tackling our debts, Joshua sold his oversized house and moved into a tiny apartment. Ryan sold his fancy new car and purchased a decade-old vehicle without a monthly payment. We both jettisoned our cable subscriptions, satellite radio, and other superfluous bills that saved us hundreds of dollars each month. We also did “strange” things like deliver pizzas, work overtime, and find other ways to supplement our income in the short-term so we could pay off our debts faster. Plus, we sold hundreds of items—electronics, furniture, clothes, DVDs, books, collectibles, tools, yard equipment—that weren’t essential, and we used that money to further pay down our debts. Basically, anything that wasn’t nailed to the floor found it’s way to eBay. Now everything we own serves a purpose or brings us joy, and we don’t miss any of the trinkets of yesteryear.
Don’t know how to start minimizing? Consider our 30-Day Minimalism Game. Or if you’re feeling aggressive, have a Packing Party and a Scanning Party. You can also visit our Start Here page for more ideas.
The shortest path toward freedom is: appreciating what you already have. One of the best ways to find gratitude for the gifts you’ve already been given is to change your perspective.
To do so, donate your most precious asset: your time. Bring your family to a local soup kitchen, foodbank, or homeless shelter. Tutor less-privileged children in your city. Help the elderly with groceries or in-home care. Work on low-income houses with Habitat for Humanity. There are more resources than ever to help you contribute beyond yourself in a meaningful way; just do an Internet search for volunteer opportunities in your area.
Whatever you do to build your contribution muscle, it needn’t be grandiose; it need only contribute to someone else’s life. If you do this for a few weeks, you’ll realize that your financial problems are tiny compared to many of the problems in the world around you. By discovering the smallness of your financial woes, you’ll feel empowered to take massive action and beat the crap out of your relatively miniature problems.
In a short period of time—two or three years—your entire life can radically transform from what it is today. All it takes is a plan (which you now have), determination (i.e., turning your shoulds into musts), and consistent action in the right direction.
Financial freedom isn’t easy, but you knew that before reading this essay. The exciting part about these five principles is that they apply to anyone, anywhere on the socioeconomic ladder. Whether you earn minimum wage or six-figures, whether you are single or have half-a-dozen children, we have seen these principles work for thousands of individuals—because it’s not about our income level; it’s about the decisions we make with the resources we have.
You are now equipped with a recipe to make outstanding financial changes. You are obviously welcome to add your own ingredients to taste, but when it comes to true financial freedom, these five ingredients—budget, invest, eliminate debt, minimize, contribute—are nonnegotiable. All five are necessary.
Yes, you still have a considerable amount of research and planning and hard work ahead of you; but most important, you have to take action today. Diligence is paramount.
debt free planner
How can write invoices from my recievables as bad debt? At the risk of sounding flip, use the Bad Debt Writeoff function. This is found under Tools->Routines-9gt;Sales-9gt;Write Off Documents. You do need to have the Write-Off GL account filled in in Posting Accounts (Tools -> Setup -> Posting ->Posting Accounts or in the Customer Account Maintenance window under the Accounts Button off of the Customer card). Check the Help for instructions on using this screen or, if you have a copy, it's covered in Confessions of a Dynamics GP Consultant available from your VAR or.
Each time I restart Money 2007, my lifetime planner settings are gone and I have to reneter them. Has nayone else seen this? Is there a fix? .
I'm in the process of setting up a debt reduction plan in Money 2004 Standard. Every time I try to set up a plan, there is always $0.18 in the extra payment field. Even when I clear it to zero, it always goes back to $0.18. Is there a way to fix this? If so, how? Are there any other issues or problems with this version of the debt reduction planner. Thanks for your help. /Mike Biel Try resetting the DRP from within Tools > Options. -- Regards Bob Peel, Microsoft MVP - Money For UK tips & fixes see http://support.microsoft.com/default.aspx?scid=fh;EN-GB;mny. For wi.
Hello, I am frustrated in trying to get debt reduction setup. I have a sears card that I want to pay 250.00 a month. Money says the first payment must be 1400.00 How can I tell Money to pay just 250.00? also I have a fixed loan of 400.00 that does not change. I do not want money to roll payoffs into this amount. Thanks Frank .
I use version 22.214.171.1245 (MS Money 2005 Deluxe) When I try to Reset the DRP as described in MS knowledge base and other threads of this discussion group by clicking Tools --> Settings, I can't find any 'Planner Settings' or 'Planner Options' hyperlink. Is there something wrong with my MS Money version? Is there a patch ? Thanks in advance. .
I've just upgraded to Money 2003 and find that, in the Annual Budget report, all my credit card transactions are reported as expenses twice - once in a Debt category and once in the category I assigned them when I entered them. Any suggestions? J. Golden in California .
I had my dates on my laptop wrong (in the future). I started Money, quickly figured out that my computer date was in the future, changed the computer date, and closed money. Now my Debt Planner only recognizes a begin date in Nov '04. How can you reset or change the Begin Date for the Debt Planner? P.S. using the Options: Planner: Reset Planner button does not work. Thanks. Kirk Gomez .
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based on dave ramsey's book of the same name. borrowing more money won't help. consolidation won't either. you need a Total money makeover! http://gazelleintense.freeforums.org a free site, free service. no ads .
I manged to get y credit cards added the planner thanks to the forum. Everything seems to work well including the amounts I want to pay every month. I recently set up my mortgage using the new accounts feature and it seems the amortization schedule is working well like it did with Money 2003. I enter the required information in account wizard (balance, interest rate, P&I, etc.). Money automatically calculates number of payments, interest, etc.). I then go back to change the loan terms to reflect the additional principal payment. Here's where I run into a problem. My monthly pay.
Hello, Not sure if I understand this. I created my mortgage payment bill. In order to have an amoritization schedule, I have to categorize it as a Loan Payment: bank name (acct I created) but it shows up under Special:debt not under my category Bills:Mortgage and I can't change it. It will automatically appear in the account register broken down into principal and interest as well as the checking acct it was written from. So next problem when we refinanced I deleted the old bill and created a new one but now the budget amount is the total of the old bill and the new one. I foun.
I received an early Christmas present today. I bought a car from my employer and had been making payments on it. Today, the boss called me into the office and told me the company was forgiving my loan and that henceforth there would be no more car payments. How should I relieve the loan in Money 2004? Update amount owed as $0.00? Cool boss, huh? Thanks. In microsoft.public.money, Will L wrote: >I received an early Christmas present today. I bought a car from my >employer and had been making payments on it. Today, the boss called me >into the office and told me the company was forg.
I've been trying to get my DRP and budget all working together nicely, but the thing just doesn't seem to work out. I did a search for DRP related info here, and it seems like several people are having weird problems like me. I'm getting the impression that I should just write off the DRP as a as a bad idea gone worse. am I correct? Yes. The DRP has it's own little quirks.. and the budget.. yea right. if you have any problems with your money file, or don't use the program exacly as it's intende.. or deleted bills instead of ending them.. poof.. explode. wh.
I put every bit of debt I have in my debt planner. However, the cash flow doesn't take my planner payments into account. I can't put my individual payments in my Bills list (which would solve the cash flow problem) because then it adds those bills on top of my debt planner payment in my budget. Any ideas. Chad >-----Original Message----- >I put every bit of debt I have in my debt planner. >However, the cash flow doesn't take my planner payments >into account. I can't put my individual payments in my >Bills list (which would solve the cash flow .
Need to know percapita consumer debt. Debt amount is 2121.1 billions, population is 295,622,256. How would I enter equation? Put the debt value in A1 Put the population value in B1 Put this in C1 =A1/B1 Vaya con Dios, Chuck, CABGx3 "cabe889quot; <[email protected]; wrote in message news:[email protected] > Need to know percapita consumer debt. Debt amount is 2121.1 billions, > population is 295,622,256. How would I enter equation? Debt in A1 $2,121,100,000,000 Population in B1 295,622,256 Formula in C1 =.
I am trying to set up my debt reduction and even when I give it a max payment per month it wants to pay my credit balance off in the first month. I am using 2004. Seems I did this before in 2003 and didn't have this problem. Is there something I am forgetting to set. I do not have the account info to pay bal each period. >-----Original Message----- >I am trying to set up my debt reduction and even when I >give it a max payment per month it wants to pay my credit >balance off in the first month. I am using 2004. Seems >I did this before in 2003 and didn't.
If I want to pay $1700 per month, why does the debt planner use the minimum amount ($520) for the first six months? There is plenty of money available in my budget. .
Hi, I have a debt of $24000 in 6 payments, i.e. $4000/month. I opened an account in Money with $24000 debit, and have set 6 auto-transfers so that I can clearly remind myself when to pay the debts and the balance left. However, when I set auto-transfer, it will not treat it as a bill and therefore I cannot choose the Catagory. How can I include the debt payment in the Budget Catagory so that I can view comprehesive how much each month i'm gonna spend? Thank you! The issue here is that this looks to Money as cash flow neutral. You're taking money from an asset and applying it .
I have a really good template from MS called Event Schedule Planner 2009 but want to change it to 2010. When I change the year on the heading, the 12 month calendar below doesn't change . How can I change that, other than importing a calendar? The problem is that the project phases won't work (I think) if I insert a 2010 calendar. Will the dates I choose automatically change with the new calendar I insert? The planner template is but a basic document template. It is not macro driven and it could be a bit of a pain to make it so. There is no correlation between the dates.
I have created a plan and in reviewing what I would like to do the plan shows a large intial payment, then shows what I stated that I want to pay. How can I eliminate the large payment and just use what I plan on paying monthly? Be sure to enter the debt into the plan in the month that you want to start having the DRP manage that debt. Otherwise, Money still expects you to pay for those months up until you start. Also, when you enter the loan or debt into the plan, be sure to say that you've made this months payment. If that doesn't help, sometimes you need to reset the Debt Plan a.
Looking at all these postings, did I miss a successor to Lifetime Planner? The brokerage houses all seem to have at least one. Anybody have any experience they care to share? Thanks On Sep 24, 12:12=A0pm, jsignom <jsig. @hotmail.com> wrote: > Looking at all these postings, did I miss a successor to Lifetime > Planner? > The brokerage houses all seem to have at least one. Anybody have any > experience they care to share? > > Thanks I've looked and looked and never found a suitable successor to Money's Lifetime Planner. I ended up going with Quicken. it does.
I need to budget my paycheck to cover all my outflow, credit cards included! The Debt reduction planner does not do this properly, it counts bills twice or adds additional money to minimum payments, etc., so that you can get out of debt. I want to show my bills (credit cards, etc) in my budget under debt so that I can see how much I really have left over. I know quicken used to be able to do this and calculated credit cards into the budget, w/o DRP. I mean after all if you cant budget for your regularly scheduled bills, all of them credit cards included, then what good is this progra.
Since the IRS now requires debt secured by your home to be split into two components -- acquisition debt and equity debt -- does anyone have any idea about how to make Money split mortgage payments to track principal and interest on these components separately? Ted Lesher .
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