America Saves Week 2020 – Save with a Plan: From Overwhelmed to Financial Freedom

Overwhelmed is a word I hear frequently as a financial counselor and with good reason. When our finances are out of control, we feel “overwhelmed.” And, oftentimes, it can feel even more overwhelming to reach out for help only to receive advice with unfamiliar terminology or a plan we don’t know how to apply to our life.

But asking for help doesn’t have to be overwhelming.  Financial freedom can, and should be, as fun as planning a trip. Yes, you have to do some research, but with a little bit of patience, and by breaking down your goals into small steps, you will get there.

3 steps to financial freedom:

1. Pay attention.
2. Spend less than you earn.
3. Invest.

1. Pay attention.

When it comes to controlling our finances, our biggest challenge is often ourselves!  Most people who commit to tracking their finances for 30 days find a few surprises. Many discover over spending on groceries, fast food, small ticket items, and reoccurring subscriptions they forgot to cancel. 

That last-minute energy drink at the checkout actually adds to quite a hefty sum when you add up the monthly/yearly expense. Andrew Fiebert does the math for us in his article “Money Matters so Pay Attention.” He found that if you save your $3.50 twice day rather than spending it on a specialty drink and invest in an average market fund such as the S&P 500, in ten years you would have roughly $26,608.

2. Spend less than you earn.

Depending on your situation, spending less than you earn may sound like a no brainer, or it may sound impossible. The reality is, if you are spending more than you earn you will never get ahead.

The first step in successfully spending less than you earn is knowing your numbers. Sit down and calculate your net pay – what you actually bring home minus your monthly expenses. Don’t forget to include things like the holidays, vacations, birthday parties, and car maintenance.

For expenses that do not occur on a monthly basis, take the total amount and divide it by 12 months. If you are left with a positive amount, automate that amount to go into your emergency fund, retirement accounts, or other interest-bearing accounts. If you end up with a negative amount, look for areas where you can cut back, or ways to earn additional income. 

One of the biggest mistakes people make is using credit to fill the income gaps, which makes their financial situation that much more difficult to get out of and creates stress.

3. Invest.

Investing can sound complicated; however, the financial industry has been reinventing itself and has become increasingly user friendly for the average investor. 

To begin investing you need to determine both your short and long term goals.  Are you looking to buy a car, a home, or to retire in 10 years?

Once you understand what you are saving for you can select the financial products at a financial institution you trust that will allow you to reach your goals. Make sure you understand the fees attached with the investment tools you choose, as this can cost you thousands in the long run.

The most important decision you can make to reach financial freedom is to do something. When it comes to growing wealth, time is your best friend. The biggest mistake anyone can make in regards to their finances is to avoid them.  Everyone must deal with their personal finances, and like most challenges in life, if we face them head on, we realize that it wasn’t as bad as we thought.  If we ignore them however, the situation will almost certainly get worse and tap us on the shoulder at the most inconvenient time. Dedicating a small amount of time each week to understanding and gaining control of your personal finances will result in a lifetime of memories and adventures without financial stress.

Guest Contributor: Valerie Richards, AFC®