Ditch that budget and craft a ‘financial freedom’ plan instead

Advisors


How can you create a financial freedom plan? The first step is to define your goals and your values. What would you be doing if you had more time? What responsibilities would you give up if you could? Where do you see yourself in five years if everything goes right in your life? It helps to bring as much detail as you can to your vision. Knowing that I am living my dream of varied days, using my skills to help people find peace and overcome challenge in their financial lives, motivates me to stick to my plan.

The next, and hardest, step is to understand how and why you are spending your money. Websites such as mint.com and ynab.com categorize all of your purchases to help answer the question of how you spend. My husband and I have found the app Home Budget has helped with the process of answering the why. The need to manually enter every purchase requires us to bring mindful awareness to each individual spending decision.

More from Investor Toolkit:
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Psychology of investing: Don’t let emotions influence your decisions

Mindful awareness does not necessarily lead us to perfect financial decisions. We are human, after all, and our purchases serve many needs beyond financial — some worthwhile, some not so much. We are all guilty of referring to our “wants” as needs, such as “I need a new outfit for the party.” The problem arises when, in pursuit of pleasure, we put our security and our values at risk.

Know that developing greater awareness of the emotions and judgments that create your spending “needs” will lead to change. And recognize that it is curiosity and compassion, not judgment and disapproval, that encourage this change.



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