The Budget Mom's 9 Steps to Financial Freedom

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- 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.
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Channel: The Budget Mom
Views: 92,159
Rating: 4.945569 out of 5
Keywords: the budget mom, save money, pay off debt, debt free, personal finance, financial freedom, how to budget, financial independence, paycheck budget, cash envelope method, frugal mom, saving money, cash envelopes, personal finances, paying off debt, frugal living, savings goals, steps to financial freedom, saving money tips, financial freedom motivation, financial freedom movement, personal finance for dummies, how to, dave ramsey, simple steps, money saving tips
Id: vB2T8tzVqH0
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Length: 33min 48sec (2028 seconds)
Published: Sat Feb 29 2020
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