- Welcome to The Budget
Mom YouTube channel. I'm Kumiko Love from thebudgetmom.com, and today we are talking all about The Budget Mom
financial freedom steps. So what exactly is this? You know, I've been on this
journey for a really long time and documenting and sharing that journey with you since 2016. And I was talking to my assistant, Ryan, and we realized that we never really, you know, I've talked
about my financial steps, the budget by paycheck method, to a lot of you, and mentioned them many times, but when I was talking to my assistant, we realized that we've
never really said out loud easy, digestible steps about
my financial philosophy as The Budget Mom, which really stem from my experience and my failures throughout
my entire journey. So today we're breaking down
each one of those steps. (upbeat music) So all throughout my financial journey, I've grown older, I've learned a lot. I discovered a lot of hard lessons that were developed from failures, and one of the main things I realized is the journey to financial
freedom is really easy, but the journey of self-discovery isn't. And that's really what my
financial freedom stems from. It's really about the emotional and psychological triggers
behind money management. Because what I learned on my journey, so much of what we do and the financial decisions that we make are from the emotions and internal struggles that we deal with. In fact, I've thought long and hard about why I failed in
certain areas of my journey, especially when I was trying to learn how to budget my own money, and what I realized is
that a financial journey should not be something
where you feel boxed in. And that's why I failed
so many times in the past, is I felt like I had to be stuck in this monthly budgeting box. I wasn't giving myself permission to step outside of that zone. But not only that, when I was listening and
taking other people's advice about how I can be better with my finances and really bring financial
freedom into my life, I realized that a lot of the time my financial goals were
given and provided for me. I didn't have the freedom
to step back and say, wait a minute, this is what
they're telling me to do but deep down in my gut and my heart, I knew that it was in a different place in my financial journey and I wanted to work on different things. But I felt like I was failing because I was going against
what I was being taught and what I was being told. And that feeling of failure is what really led me
to do a mindset shift and all of a sudden I stopped
focusing on the negative and I started focusing on the positive. So I failed a lot in these areas but I also succeeded in many, many ways and I learned a lot. So today we're gonna be talking about my financial philosophy
and what that means, what the nine steps for the
TBM financial freedom steps. Everything in my system revolves around having the confidence to make the financial decisions
necessary in your life to get where you want to go. Not where someone else wants to go, not where your friends want to go, not where your parents want you to go, but for you and a family as a whole, what you want to achieve in your life and what you envision for
the future that you want. So the main thing to remember is that the financial freedom steps, they are not black and white. They are guiding steps that can guide you along your journey, but the main thing to remember is how you complete these
steps is completely up to you. So why aren't they black and white? Why aren't they black and white, like, save a thousand dollars
for your emergency fund, or, pay off all of your debt
using the snowball method? These types of steps, they're very, very descriptive, right? They give your goal for you. A thousand dollars to your emergency fund. That goal is provided for you. These steps aren't like that, here's why. Because what I have
learned is that your budget is the most personal
thing you will ever create and how you complete these steps needs to be a personal decision based on what's going
on in your real life. Some people say that that leaves too many unanswered questions, but it's those hard questions that I want you to answer for yourself. I don't want to give
those answers for you, because that's the whole part of being and doing these financial freedom steps. It's about self-discovery and really learning about yourself and why you make the decisions you do or want the certain things in your life or want to accomplish these certain goals. Those questions and how you
complete the steps is up to you. So let's talk about
freedom step number one. The number one step in my process, it is by far the most critical thing that you will do on your journey because it's what's going
to keep you motivated and dedicated during the entire thing, and that is establishing
your why and motivation. So I get so many questions
from readers asking me, Miko, how did you stay motivated? Especially, like, saving
for my house with cash, it was something that
I wanted so, so badly, but I held back and I
was a patient spender and I waited over three
years to obtain that goal. How did I stay motivated? It all came down to my why
and purpose on this journey. Why the heck am I even doing this? There is a reason why you're
here watching this video. There's a reason why you're wanting to get better with your finances. There's a reason why you're
asking these questions. What is it? Now, a lot of you in your minds, you're gonna spit out
something really, really fast but I want you to wait. I want you to really think
about not just something, there has to be an emotional connection to your purpose and why. It should be something that
is so important to you, you get emotional speaking about it. It's not just for your children. What it is about your children that makes you want to get
better with your finances? For me, it has to be specific. Because ultimately, you have to know what you're giving up on
your financial journey if you get off course or if you give up or if you fail and step
back and don't continue. It's that why on your financial journey that really does make
the biggest difference. Now, for me, I know a lot of the time I say my why is my son James, but it's deeper than that. It's about having a life with my son where I can seize opportunities with him without relying on debt. Do you see how specific that is? And if I decided to give
up on my financial journey, if I gave in and financed my house instead of paying for cash, if I gave up and didn't pay
off my student debt loans or my overall debt, I wouldn't get to that life
that I envision with my son. That's what I was giving up and that sparked something in me. And that's what your
why should do for you. Freedom step number two, prioritize your financial goals. And the reason that
this is the second step is because it's really
important that you know where to place your money
on your financial journey and you can't do that unless you have your
financial goals established. I don't want you to just write
down your financial goals. I want you to prioritize
them in two different ways. I want you to prioritize
them based on time horizon, so short, medium, and long term goals. So let's talk about that for a second. What are short term goals? It's anything that you want to accomplish in one to three years. Medium term goals are anything
from five to seven years. And then long term goals
is seven and beyond, seven years and beyond. So all of a sudden you're
thinking about retirement, you're thinking about
paying off your mortgage. Those are long term goals. The next way I want you to
prioritize your savings goals is in order of importance. That is key and it's critical, because I've talked about so many times on this journey with you that you can save for more than one thing. It's not one or the other. It's not pay off debt or save. It's not save for my kids college fund or save for a family vacation. You can do all of those things as long as there is a priority and a method to which you're doing it. Because what happens is
you want your spending to tell you what your
priorities are in your life and if your spending isn't reflecting that then you're not managing
your money in a way where you're going to feel satisfied and successful with it. So maybe your number one
priority is paying off debt. Maybe 90% of your extra income
in your budget goes to debt and that's fine. Maybe the 10% goes to the savings. But here's the most important thing, you have to be okay with the trade-offs. And what I mean by that is, sure, you can pay off
your debt a lot faster if you weren't saving
for that family vacation, but for me, for me personally, life is too short to only pay off debt and not live the life
you are given right now. Because the life you are
given right now is a blessing and it's not guaranteed for tomorrow. And so for me personally,
when I was paying off debt, I saved at the same time to take family vacations with my family and spend quality time and make those memories while I could. Now, maybe you are super intense and wanna pay off your
debt as quickly as possible because that's what matters to you and that's what your fight is all about. Then all of your extra
income would go towards debt. And that's what I'm talking
about with these freedom steps. How you complete each step is up to you and you have to be forced to ask yourself those hard questions, but not only that, answer them honestly. Push aside all the noise and
what everyone is telling you and think about what is
most important to you and the life you have now. So included in step number two, there is one priority
that I want you to make. Included in those savings goals, more importantly, your short term goals, I want you to include emergency savings, especially if you have debt. Because what happens along
the way and what I learned is without an emergency savings is sometimes things pop up in our lives and all of a sudden we are forced to revert back to our old spending habits or going into debt to take care of what
happens in life, real life. So you have to have something in place to cover you for those things so you can move forward
on your financial journey without feeling like you're getting, you know, taking two steps back every single time something pops up. A question I get is, how much
should my emergency fund be? I can't answer that for you. That's one of the questions you
have to answer for yourself. It should be an amount
where you feel comfortable and secure with your finances. It should be an amount
where you go to be at night feeling at peace with
what you have set aside. Now, for me, I started
with a thousand dollars. Because, let me tell you, a thousand dollars is better than nothing. But as a new mom, a thousand dollars wasn't enough to put my heart at bay if something medically
were to happen to my son. I felt like, oh my gosh, if something were to happen, I couldn't pay for his
medical costs or treatment. So I bumped it to $5,000, and that was an amount that
really made me feel secure and confident with my financial decisions. So the amount is up to you, but I will tell you, make it an amount where it's
gonna cover those things that at least pop up in your life as you go along through
the rest of the steps. Step number three, bring
awareness into your life. But not just awareness, bring honesty into your life. You can work through these steps, you can do all the work
and write everything out, doesn't mean you have to
be honest in the process. Because without that honesty
in answering yourself and asking yourself those hard questions, all of a sudden, what you're doing is
you're doing robot work. You're not learning how to
manage your money in a way where you're gonna keep yourself
out of debt in the future. Along this journey, you
are doing certain things to have better financial
habits in the future. And that won't happen if you're
simply just doing the work. So be honest with yourself when you're asking yourself
those hard questions. How do you bring awareness into your life? It's all about tracking your spending. Now, I am a hardcore believer, and if you follow my
budget by paycheck steps, you know I'm a believer
in manual tracking. It was a big aha moment in my life. There is a reason I bring pen to paper. There's something
psychologically different that happens to us. It's almost like our spending becomes real when we write it down. And so I use the highlighter method, and I'll show you. This is what bringing awareness
into my life looks like. It looks like this. So I use the highlighter method. And I use colors to
categories my spending, why? Because I'm a visual learner. Visually, colors and
pretty things stimulate me and make me excited about what I'm doing. So tracking your spending. Now, am I gonna force you to manually track your spending? No, I want you to track your spending in a way that's easy
and efficient for you. Something that makes sense in your mind. What categories do you use? Where do you place certain
spending transactions in what categories? I don't know. You have to do it in a way
that makes sense to you. Now, if you're putting certain spending
transactions in categories because that's what you've seen, but every single month, you're going back and you're like, well, that doesn't make sense. Why did I put it there? Then it's not worth doing all the work if it's not something
that makes sense to you. So tracking your spending and knowing where every
dollar goes is critical. Step number four, create
a budget calendar. Now, with a lot of these steps, you're gonna say, hey, that's part of your
budget by paycheck steps. And that's true. My budget by paycheck steps and the financial freedom steps, they're different, but
some of them overlap. And that's because I felt like
those steps were big enough, they were big aha moments in my journey that didn't just make change, it made lasting change in my life. So much to the fact where I've been budgeting
for almost 10 years and I still do them because they're that important and made such a significant impact in my finances and what I'm doing. So what's creating a budget calendar? So much of the time we think
we're prepared financially because we're paying our bills on time. We think budgeting, pay your bills. But preparing your finances
is about a lot more than just paying your bills on time. Have you ever asked yourself the question and get your paycheck, you pay all your bills on time, you're doing really great, and then you get kinda towards the end of your pay period
and you're out of money. And you're like, where did the money go? What happened was it went to things that pop up in our life like holidays, events,
dinners with friends, weddings, appointments,
doctor appointments, dentist appointments, salon appointments, all the things that should
be included in our budget, but a lot of the time they
kind of just aren't there. So creating a budget calendar is really about getting those
things down on a calendar so you know what to
include in your budget. So for me, we can look at February. This is my budget calendar. And as you can see, it's not
just bills on my calendar. I have Valentine's Day. Hey, I'm spending money
on Valentine's Day, that better be in my budget. I have grocery day. I have travel dates. I have savings challenges going on. I have appointments going on. All of these things. Being truly financially prepared is about covering all aspects of our life, not just the bills. Freedom step number five is create and establish
a realistic budget. And not just that, but to
tweak and perfect as you go. Because if you're doing
this the right way, your budget should not be the same paycheck after paycheck
or month after month. Why is that? Because your life isn't always the same. And your budget better be
reflecting those changes. Creating a realistic budget is all about using my
budget by paycheck method. And those are completely different steps. Now in today's video, I don't want to jump into those steps because I don't want
you to get them confused about what we're talking about today. But we'll address those different budget by paycheck steps in a later video. And I have some articles that
kinda explain those steps in the description of this video. So creating a realistic budget. It's not about just writing numbers down on a piece of paper. Look, you already took care
of freedom step number three, which is tracking your spending and bringing awareness into your life. Your budget should be created based on what you see
there in step number three. It's about what's happening
with your spending. That's how you create your budget. What categories you use, what limits you use for those categories, all of that is gonna be discovered when you track your spending. Start with what's realistically
happening in your life, and then you start challenging
yourself to cut expenses. So maybe right now you're spending a thousand dollars a month on food and in your heart, you
know that's way too much. But start at that starting point, why? Because that's where you currently are. You don't wanna set your budget up to fail from the very beginning. If you're currently spending a thousand dollars a month on food, you don't wanna create
your first budget saying, well, I really wanna spend
$500 a month on my food so that's what I'm gonna write down. No, because you will fail. And what happens at that
time, you get frustrated, and you feel like your
budget isn't working so you give up. So start with success first, with what's really going on realistically with your spending. From there, say, okay,
well, you know what? Let's try cutting it by $50 next month. Let's see if I can handle that. Maybe you succeed. All of a sudden you discover, oh my gosh, I can reach that. All right, let's cut it by another $50. Boom, you hit that, you
cut it by another $50. So tweaking and perfecting
is not only taking care of what's happening in the
changes in your personal life, but it's also making
and challenging yourself to cut back spending. So freedom step number six, the cash envelope method, Force yourself to ask the hard questions about your spending. And nothing did this more
for me than spending cash. So I've been an all-cash
spender since probably, really heavily, since 2015. And it is literally the one thing that I implemented on my financial journey where I saw the most success and that's because I'm an overspender. I'm a spender at heart. But not only that, during my
journey and my self-discovery, I learned I'm a brand junkie. I gravitate towards the really
high-end name brand clothes like North Face, Patagonia, the brands that I really
couldn't afford back then. So spending cash, and not only that, I learned
I'm a visual learner. I'm a visual motivator. So being able to see the
cash that I have to spend in front of my face, all of a sudden my budget became tangible. So when I go the store
and I swipe my debit card, I'm like throwing things in my cart, I'm like throwing a six-pack of soda. I'm, you know, grabbing protein bars, things that aren't on my list. But when you open your envelope and you only see you have $30, all of a sudden, you're forced to ask
yourself about your spending. Like, well, do I really need that? I only have $30 to get
me to my next payday. It makes your budget tangible and it makes you ask the hard questions about your spending habits. Now, I understand that
not everyone out there is cash spenders. Some people are uncomfortable
carrying cash, I get that. Am I saying you have to be an all-cash spender for
the rest of your life? No, but when you're just
starting this journey and you're learning about yourself, you're finding spending habits
that maybe aren't so good. The one way to really hone in on that is to do cash spending. I'm a firm believer in that, so that's why I've included
it in freedom step number six. Freedom step number seven, create a plan of attack
and pay off your debt. I don't care if you use
the snowball method, if you use the avalanche method, if you use both, because here's the thing. I used one, the other, and both, on my debt payoff journey. And I will say out loud, it was the reason I was so successful at paying off my debt. But what plan of attack you
use to pay off your debt has to be something that
keeps you motivated. What keeps you motivated? What makes you mad about your debt? Is it the interest
rates that you're paying that's going to absolutely nothing? Is it the fact that you have
so many credit card accounts it's honestly keeping you up at night, because you're juggling so many different types
of debt in your mind and it's overwhelming? What is going to keep you
motivated on this journey? Now, for me personally, what made me the angriest, what made me feel enough
emotion to take action, was knowing how much I was putting, every single time I made a debt payment, how much of it was going to interest. It made me furious. So much in fact, that
I said, you know what? I'm gonna focus on the debts that have the highest
interest rates first, because I know over the long run, I'm gonna save the most
in interest payments. But if you're the type of person where you have seven
different credit card accounts and what's keeping you up at
night and making you angry is the fact that you're like, I have so many of these, maybe you tackle the
smallest balance first and go the snowball route. There is no wrong or right way here. The right way is paying off your debt. And that's ultimately what
you're trying to achieve with step number seven. 'Cause paying off your debt, in a lot of ways, is financial freedom. We're no longer slaves to other people. We can seize opportunities in our lives without constantly asking,
well, you know what? I can't do that because I have debt. I don't know how many times I said that to myself on my journey. I can't take a vacation because
I wanna pay off my debt. I can't do this with my son because I have all these
student loan payments. It's holding you back from becoming and the life that you want. So that's freedom step number seven. It's also important during
freedom step number seven to prioritize your debt with
the method that you choose. It's getting everything about your debt onto a piece of paper. It's writing out every
single person you owe, writing out the interest rates, the minimum payments that
are due, the due dates. You should know every
single fact about your debt. That should be written down
on a piece of paper first. From there, you pick out
what method you want to use, and then you tackle it. Every single day, you remember your why
and why you're doing this and you fight for that every single day. Now, there are gonna be days where you can't make extra debt payments. Does that mean that you can't take steps to pay off your debt? Because a debt payoff journey isn't just about making the debt payments. Stop focusing on the numbers and start focusing on the action steps that are gonna get you to success. That's what you need to be focusing on. And one day in a later video, we'll be talking all about comparison and what that means on
your financial journey, because a lot of the time what happens is comparison is the thief of joy. And when you stop comparing your debt payoff journey to other people's and what other people are paying off, 'cause a lot of the time, what do we compare ourselves to? We compare our numbers. Instead of asking and looking at, hey, what are they doing to get there?, we are too busy looking at the numbers. That's not what's important. So that's freedom step number seven. Freedom step number eight,
maximize your retirement. So maximize your retirement means after you've paid
off your debt, okay? You've established your savings goals. Maximizing and dealing with retirement should be listed somewhere
in your savings goals. Now, that's saving 10
to 15% of your income goes towards retirement. It's striving for max contributions. What do I mean by mass contributions? So if you have a Roth
IRA or a traditional IRA, by law, you can contribute up to a certain limit every single year. Now, in 2019, that was $6,500. In this step, you should be aiming to max out that
contribution and do $6,500. Now, if you're over the age of 50, you have a wonderful thing provided to you called catch-up contributions, or they call them makeup contributions, where you you can do
another certain amount on top of that limit. And you should be doing that also. It's also about automating your savings. It's getting to that point and maximizing and saying, okay, to
maximize my retirement, I need to do this. Get it automated so you don't have to think
about it every month. You can set it, forget
it type of mentality with your savings, because when things are easy, we're more likely to stick to it. But not only that, if it happens
every month like clockwork, all of a sudden, what do we see? We see progress. And that progress happens without us really having to
make a whole lot of effort. Now, one of the things
with step number eight, maximizing your retirement, there is something very, a belief that I have that is
kinda a little bit different in the financial world. Doesn't matter what step you are on, if you're on step one,
step five, step nine, if your employer is willing to match your 401k contributions, you better be contributing
what they're willing to match. So if your employer has a retirement plan, and they're willing to match
you 6% of your contributions, you better be contributing 6%. Because if you don't, it's like leaving free money on the table. It's like literally looking
at your employer and saying, no, I don't want a raise. That's free money that they're
willing to give to you. Take it, because you
should save for retirement as early as possible. And if that option is provided to you, no matter what step you're on, take it. Now, I know that philosophy is a little bit different
than Dave Ramsey, who says you should halt
all retirement contributions until you pay off your debt. But if that employer matches
there, take the free money. So freedom step number nine,
focus on long term goals. It's time to start focusing on the long term goals that matter to you. And that's what you're gonna
focus on in step number nine. It's using all extra income that you have to fund these long term financial goals. So long term financial
goals are retirement, paying off the mortgage, saving for your children's
college and future. Now, here's the thing, a lot of you guys know, who have been following
my financial journey for a long time know that I started saving
for my son's college when he was just born. And I started that step before I got to even, you
know, step number five. But why did I do that? Because it was a part
of my step number two, which was prioritizing my financial goals. And I knew that saving for my
son's future was a priority. And remember how I told
you you could do both? Now, in the very beginning, it was only $20 a month. It wasn't a whole lot, but as a mom, it gave me peace of mind knowing I was taking action towards something that
was so important to me. So you can do both. And that's still a long
term financial goal, long term financial goal. Because what happens when
you pay off your debt and you accomplish all these other steps, you can start really
putting a lot more money towards these long term financial goals. It's no longer just 20 bucks. It now all becomes $500 a month because you have more financial resources from working through the rest of the steps to really take care of those
long term financial goals. So freedom step number nine
is also about building wealth. And in my eyes, building
wealth isn't necessarily just saving things for my financial goals. Building wealth means leaving something to my beneficiaries and
my heirs when I pass. Maybe that's a financial goal. I know it's super important that when I'm no longer here for my son, that I have something
established in place and saved to pass down to him
when I'm no longer here. So building wealth looks different to a lot of different people, and what that means to you. And it's one of those hard questions that I want you to answer for yourself. So those are my financial freedom steps. Bringing financial freedom into your life, it's gonna take temporary sacrifices. But that doesn't mean stripping out all the happiness and joy in your life. Because life is too short to have such a huge
portion of it for struggle. So you can still have fun, you can still live your best life, you can still make memories
and have opportunities when you're working through
these financial freedom steps. Remember, prioritize. And not only that, being
okay with the trade-offs. Because sometimes in life, things are so important that we're okay with those
temporary trade-offs. True success isn't just about the numbers. It's also about learning
how to manage your emotions, walking your own path,
following your heart, and figuring out who you really are. A financial journey is also
a self-discovery journey, one that we all need to embrace. A financial journey is a
self-discovery journey, one that we all need to embrace. It's so good. I don't know how I pulled that
out of my butt, but I did. (woman laughs) - Great.
- Ah, done! (laughs) - Yay!
- (claps) Done, okay.
