In my journey towards financial freedom, I’m starting to see the same fundamentals come up again and again.
If you want to work like you don’t need the money or be ok even if you lost your job tomorrow, you need to build wealth.
And to build wealth, you need to have a surplus or savings by earning more and spending less, then investing your savings so your money can grow over time.
But saving’s going to be hard to do if you have a leaking money habit that works against you — that slow, constant drip that you may not even be aware of.
How To Fix Your Money Leaks
When I decided to take charge of my financial life, I started inspecting my daily money actions mercilessly.
Here are the steps I took to fix my money leaks.
#1. Know What You’re Spending On Now
One of the easiest and fastest ways to identify your monthly leaks is to start tracking your expenses.
I use a mobile app called Pocket Expense Lite. It’s a free app that is simple to use and great to start with.
As with any habit, it takes some behavioural change. So I’ve chosen this app because I’ve found it effortless to use. When you’re trying to change a behaviour and habit, make it as simple as possible so you give yourself no excuses.
Each time you make a purchase, enter the amount and what it’s for.
Pocket Expense lets you create categories, such as Eating Out, Auto, Clothing, Education, Credit Card Payment etc. to every expense you enter.
This is a simple yet powerful way to reveal where your daily expenditures are going.
#2. Review Your Spending Together With Your Daily Routines & Activities
What I did next was to update my daily expenses to my monthly spending plan. This plan helped me see how my daily expenses add up in a month and the 12 months into a year’s spending plan.
After you’ve started tracking your expenses on a daily basis for at least a month, go over your day-to-day spending activities bearing in mind your daily habits and activities.
In my case, I noticed that even though I have coffee available at work, I’d still buy one after lunch.
I also noticed I spent the most on weekends since this is usually when we go out with the kids and eat out.
As I updated my monthly spending plan, I saw that I was paying $150 to $200 on a club membership I hardly used and even when I did, it was only to eat at a cafe there.
Another thing I had not realized I was spending so much on were books. I was spending about $100 to $200 a month buying books, stocking up my shelves with books I haven’t yet had time to read.
All this time I told myself I was enriching my mind and my soul. After all, books weren’t exactly as frivolous as buying handbags and shoes.
We often don’t think of our spending as frivolous, but I was still spending hundreds of dollars on a seemingly worthwhile item…
#3. Make Slight Adjustments
I’m not a big proponent of going cold turkey — after all, my idea of working towards financial freedom is not to deprive yourself completely and live a miserable life.
But what I did was look carefully at my daily activities versus my spending habits.
I decided that I’d just buy coffee twice a week instead of a daily coffee.
Rather than buying books without thinking twice about it, I’d give myself a budget of $20 per month with any unused portions rolling over the next month if I needed to.
I borrowed books from the library instead and told myself that I’d only buy books after I’d read it and decided I wanted to keep a copy. This freed up $100 to $200 for me to spend each month with my family on the weekends.
Next, I sold off the club membership I wasn’t using but still paying $150 to $200 per month.
When added up, it amounted to $2400 a year. After I sold the membership, I diverted the $200 per month towards the index fund I was investing in. Essentially, I shifted my $2400 expense into a $2400 investment instead.
#4. Use Your Credit Cards With Discretion
I often hear advice about how dealing with your debt involves cutting up your credit cards.
While I know credit cards are the reason many people get into debt, including myself, I believe it’s the unconscious habit of just charging everything to your credit card that gets us in trouble.
I used to validate my behaviour by saying charging to my credit cards were helping me earn points and rebates anyway.
Now, I take on a more measured and discerning approach.
I plan what will be charged to my credit card a month in advance, and I only do so for essential items that I know I’ll definitely spend on each month.
For example, I have one credit card that earns me higher rebates for my petrol, utilities and internet bills.
I have a similar credit card issued by my mobile phone carrier which earns higher rebates on my mobile phone bills.
These are expenses I will incur monthly, so I put them on an automated recurring payment arrangement on my cards. I then use the rebate dollars to offset my monthly credit card bills and pay down on debts.
I don’t charge anything else on my credit cards and have started using cash instead for all other expenses.
#5. Keep Your ‘Why’ In Mind As You’re Developing New Habits
Like a diet or an exercise plan, don’t overdo it. Stick to small, consistent changes.
We are trying to tone our discipline muscles in a sustainable way.
Like strength conditioning, it’s about lifting small weights with many repetitions in a consistent manner. This is the way to make new habits stick. Make them easily achievable and part of your daily routine.
The effort to develop new habits is worth it if it means you get to build your wealth which is fuel for financial freedom and all that this freedom means to you.
Financial freedom to me means I get to choose what I like to do without worrying about the money, I get to put savings to our kids’ college funds and build up our retirement account.
Whenever I give myself excuses why I don’t want to track an expense, I remind myself about what financial freedom means to me.
Keep your why in mind when you feel like giving up on your new habits.
The path of financial freedom is not cast in stone.
Your life priorities and earning capacity will change over time.
Review your money leaks regularly and fine-tune according to the lifestyle you want to create and as your priorities change.
These are some the practical steps I’m taking on my journey towards greater financial freedom.
This was first published on twopointzero.me
Author: Sharon Singh Sidhu