The 4 Key Building Blocks to Financial Freedom
In this blog, we are going to unpack the 4 key building blocks of financial freedom.
Some of these might seem obvious but I really want to encourage you as you read this to take action. Because this is something that for some reason I’m yet to figure out – women don’t take action. We nod and say yes, but don’t make time for our own financial health. Let’s stop that bad money behaviour today!
Before we get started though let’s talk about your life goals. Swimming along in life without a dream is unlikely to motivate us to take the actions we need to take – so stop now and write down what you want for your life – don’t hold back, dig deep and articulate what you really want.
How do you want to live?
What are your big, wild dreams for your life?
A house on the beach, travel, building a company, working for a charity, being a mum full time, luxurious holidays, debt-free, sending your kids to a private school, helping your kids through university, taking a year out with your kids to travel, buying a boat…
What do YOU want – this is life – it’s not a dress rehearsal and time is going to pass you by – don’t be left at the end thinking I really wish I had lived a different life. Only one person can make the life of your dreams happen and that’s you.
The Four Building Blocks of Financial Freedom underpin the life of your dreams.
Building Block 1 | Acknowledging Your Money Story
Do you know why you behave the way you do with your money? Here are some questions for you to think about…
Are you a Shopaholic?
Do you spend more money than you earn?
Do you feel as though you can’t get in control of money things?
Have you got a ton of debt?
Do you know you need to find out about your retirement savings but don’t?
Do you avoid doing your tax?
Do you find it hard to ask for what you are worth/owed?
Do you give too much – too generous?
Do you find it hard to let go – always scrimping and saving in a mindset of scarcity? Repeating this to family, kids, anyone who will listen?
Do you think money is too hard for you to understand?
Do you think I’m married – I don’t need to worry, my partner will look after me in return for being a full-time mum?
Do you think that the age pension will be enough?
Here’s the thing – money blocks are real – they tend to be created in our younger years – and they define how we behave with our money in adulthood.
We really need to acknowledge why we have a poor relationship with money.
Me? Took me years but as soon as I acknowledged that living a life of scarcity and poverty as a child and living in a place of verbal and physical violence that my mother couldn’t remove me from because she didn’t have the means ABSOLUTELY HAD AFFECTED ME I was able to move on.
If you need more help to take action on this area, please head over and check out the blog I wrote recently that goes more into this.
Building Block 2 | Making a Plan to Achieve the Life You Desire
This sounds obvious right. But for some reason, it isn’t! Just like going on holiday – you need a plan to make it happen!
I’m going to keep this short & sweet. The formula is what, how much do you need, by when will you achieve it, how will you achieve it.
Here’s an example for you – if your dream is to buy a house by the beach:
How much money do you need to do that?
When do you want to do it?
Be specific – say you want to buy in 5 years – how much money will you need to save each year to make it happen?
How much money does that break down to each month?
Is this achievable? Do you need to make more money somehow? How could you do that? Or do you need to spend less and put more into savings for this goal? How could you do that?
Write it out on a piece of paper like this:
In 5 years, I will buy a house by the beach. I will need $x saved by this time and I will do this by saving $x per month. To make this happen I will do x, y & z (e.g. stop buying shoes, start a business with an NWM company, whatever it is that you can do to make it happen).
Keep it somewhere you can access daily and read it out loud every single day.
REPEAT THIS FOR EVERY MAJOR FINANCIAL GOAL YOU HAVE.
Building Block 3 | Your Money Thermometer
Have you ever wondered why you have always earned roughly what you need to get by?
And struggle to bring in more?
Have you ever considered that it’s because this is exactly where you have set your money thermometer?
By setting your goals above you are forcing yourself to acknowledge that you want to earn more.
By setting a plan in place you are forcing yourself to plan to earn more.
I want you now to add to your piece of paper that you have written all your statements on HOW MUCH YOU ALLOW YOURSELF TO EARN PER MONTH AND PER YEAR. Make it huge. Make it large. Make it bold & audacious!!!
e.g. “I set my money thermometer to $200,000 a month”.
Repeat it daily along with your goals & plans – say it with faith and belief.
Building Block 4 – Managing Your Income
This is a great Dave Ramsay quote and it’s not rocket science!
“A budget is telling your money where to go instead of wondering where it went.”
Dave Ramsay
A zero-based budget where you allocate every last cent of your income to a specified place is a smart move to make progress with achieving financial security. Where income minus expenses equals zero. Where every dollar has a function.
Everything you spend, save, give or invest should add up to the exact amount of income.
How?
I like to use a spreadsheet. And my bank statement(s). I have just one tab where I start by downloading my bank statement as a .csv for a 6-month period. I then delete unnecessary columns – keeping just the amount of the transaction and anything that helps me identify what it is. I add a column that is my description for what it is.
I then sort it by the description so the same things will be grouped together. I keep one of the transactions – and add my description. Where transactions are discretionary (spending!) I review these to keep myself honest on my spending habits, then I delete them from the sheet.
I consider the list and then add things that don’t necessarily appear or jump out on a bank statement because they aren’t on direct debit such as school clothes, shoes, trainers, chemist expenses, doctor’s visits, etc. I also ensure I add anything I ‘give’ to charities, church, etc.
And I also add a monthly amount that gets put away into a different account for seasonal expenses such as Birthdays, Christmas, Car Insurance, Registration Renewals, Tax.
When I have a comprehensive list, I add it up.
Then I add over to the right all the income coming into the household including side hustle, child support, government payments and add that up.
Then minus the expenses from the income and see what is left. I hope it is a positive not a negative.
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If it’s positive, awesome.
Now add another line to your expenses in a different colour and allocate some of the positive excess to paying down debts – e.g. personal debts with high interest, adding extra to your home loan.
Now add another line to your expenses in a different colour and allocate some of the positive excess to Saving.
And another line in another colour and allocate some of the positive excess to investing – could be into retirement savings, stocks, mutual funds, ETF’s.
Then, I set up direct transfers for my Saving & Investing to another bank or financial institution for investing from the primary account to ensure that I don’t touch the money.
THIS IS TELLING YOUR MONEY WHERE TO GO AND IT WORKS!
And that’s it – 4 building blocks of financial freedom.
1. Acknowledge your money story
2. Set your goals and make a plan to achieve them
3. Set your money thermometer to the right amount
4. Manage your income
If you’re reading this and can feel yourself thinking it’s all too hard – you really know you need to put the 4 building blocks of financial freedom in place but need more help check out my services here so we can work out how to get you on the road to financial freedom.