Everyone loves the idea of obtaining financial freedom. Financial Freedom can look different for everyone, but having no debts, no living paycheck to paycheck, basically no money-related worries and being able to do the things you love, whenever you want is what most people would think of when describing Financial Freedom.
For families, having financial freedom is the ultimate goal. We all want to know that our families’ needs and wants are well-taken care of. So, how do we get there? It's all about understanding and taking control of your money. This blog will help you with crafting your roadmap to Financial Freedom.
Addressing financial needs and goals knowledge or experience to families
Let's face it. Life can throw some pretty costly curveballs. Kids are expensive. Life is expensive. From daycare and higher education to healthcare, sports and everything in between. There are so many expenses that can negatively affect a family's financial situation. This is why understanding family-specific financial needs and being prepared for the expected and unexpected is vital.
Every family faces different financial challenges and every has different financial goals that they want to achieve. Finding a way to manage the challenges while still achieving the goals is where families may fall short.
Identifying must-haves and common financial objectives
Some families may be dealing with overwhelming medical bills, while others are willing to sacrifice to achieve the goal of paying for their kids’ education. A crucial starting point is to recognize these “must-haves” or “must-pay-fors”.
What are some of your non-negotiables when it comes to your family’s finances? What are your goals? Is paying for college a must-do? Are you willing to push back your retirement in order to fund your kids' education? What about daycare - Are you OK with having a huge bill for 5 years or so before they start kindergarten? Do you or your partner have student loans? Does one of you want to stay home with the kids or retire early? Write all of these things down and assign them approximate dollar amounts and/or time frames.
This should be a productive conversation, if there is disagreement, that is OK, it is important to know where each of you stand. These goals don’t have to be solved today, a compromise can be crafted later. Having a common financial objective gives direction and purpose to your financial decisions.
Once you have your goals identified, then you need to work on a strategy to achieve them.
Understanding your cash flow: Tracking income and expenses
You can only create financial freedom from what money you have coming in. So you and your partner need to have an understanding of what is coming in and what is going out. Every dollar coming into your household needs to have a plan and purpose. Are you spending more than what you’re bringing in? If so, that first needs to stop. How much of your paycheck is being dedicated to reducing debt? The goal is 20% of your paycheck goes to debt reduction and/or savings.
Be ready to discuss everything about your household’s money openly: your income, expenses, debts, goals, “must-haves” and so on. Also, talk about the basics: how much money should we have in our checking account(s), how much makes you feel comfortable (or uncomfortable) to have in our savings? Everyone has a different pain and pleasure tolerance when it comes to money in the bank, so it is important to understand that about yourself and your partner before moving on to big financial decisions.
Now that you've identified your financial needs and goals, the next step is to implement changes to work to achieve those goals.
Important financial strategies to bear in mind
Building a solid foundation
The first step to financial freedom is to make sure you have an emergency fund. Being free means you can pay for life’s curveballs without it derailing your plans for the future. Talking about emergency funds isn’t exciting or sexy, but without one, your family could face financial ruin. As we said before, life is expensive, things happen and if you don’t have an emergency fund to pay for those unexpected expenses, you are bringing on debt and getting pushed further from the financial freedom you desire.
So, step 1 to achieving financial freedom is having an emergency fund socked away with 3 months of expenses. You can learn more about my thoughts on emergency funds and checking accounts, by checking out my podcast episode.
Step 2 is to reduce your debt. If you have high interest debt, you need to work on reducing that before working on your goals. When you are paying a high interest rate on your debt, putting money towards reducing the balance is allowing your dollar to work much harder for you.
Once your debt is in a manageable place, you can work on chipping away at your family’s goals.
Creating a customized financial roadmap for family financial freedom
You need to determine what financial freedom looks like for your family. This vision varies from one family to another. To others, it could be a life free of debt, while others define it as having enough money saved for retirement or their kid's education. What achievement will help you to sleep soundly at night?
Next, break down your major financial goals into smaller, manageable goals. For instance, saving for retirement may be one of your goals. That is very broad and vague and doesn’t provide much direction. You don’t yet know how much you need to save and even if we did, the number would probably be so big that it is daunting.
We need to make them manageable and easy to implement. First, ensure each financial objective is specific, measurable, achievable, relevant, and time-bound (SMART). So, instead of saying you want to save for retirement, change your goal to: I will contribute $100/mo to my Roth IRA.
Once that's done, you can make a note that you are now working towards saving for retirement. You’re not there and it’s going to take more than $100/mo to fund your retirement, but you made the first step. If you see after a few months that you can afford a little more money each month to retirement savings, then increase your contribution.
The same goes for any goal, start by saving a little. Notice if it makes a difference in your day-to-day life and if it doesn’t, increase the savings. By identifying your goals and breaking it down into manageable steps, you maintain control of your money and stay on course towards attaining your financial objectives.
Budgeting and saving: The pillars of financial discipline+
The phrase discipline creates freedom is the way you should think about spending. The key to any comprehensive financial plan is a practical spending strategy and a robust saving habit. Budgeting involves listing all your income and expenses, distinguishing between what's necessary and what's not. A spending strategy then creates guardrails and empowers you to spend wisely.
Go ahead and list down all your income and expenses. Distinguish between needs (the stuff you can’t live without), and wants (stuff you can live without, but would rather not). Then direct any excess funds to your savings or towards clearing debt.
To implement a strategy for spending to achieve family financial freedom, consider the 50/30/20 budgeting rule. This rule suggests that you allocate 50% of your income for necessities, 30% for wants, and the remaining 20% to savings or debt.
Establish a savings habit as early as possible. Encourage each family member to save, each according to their ability. It could be saving a percentage of their allowance or income. These savings should be directed towards their financial goals. It is much easier and more fun to save if there is a purpose.
Family financial freedom is not about having endless wealth, but a well-thought-out plan that secures your family's financial future. Through addressing your family's goals and financial needs, crafting a tailored financial roadmap, and a disciplined budgeting and saving habit, you're surely set for fulfilling.
If you need any help during the process, why don’t we start the conversation? Remember, the journey to financial independence isn't a race but a marathon. Take one step at a time, and before you know it, you'll be living your dream of financial freedom. Cheers to that!