Budgeting is step 1 to understanding what your financial picture looks like. It doesn’t need to be perfect; as long as you’re emotionally willing to take a brief look into your finances and understanding what you spend the most money on, you’ll be quickly on your way to financial independence.
First, what is financial freedom, and why is it important?
Financial freedom, simply put, means not having to be afraid to look at your bank account or bills. Knowing exactly what is coming in and out of your account each month and feeling empowered to make informed decisions and take embark on new adventures in life.
For example, let’s say you get to a breaking point at work. You can’t stand your boss anymore and you will break the next person’s back who sets up another unnecessary meeting with you. Or maybe you get sexually harassed at work or threatened. Financial freedom means that you can decide to leave your job, and know that you have some savings to carry you for the next 3-6 months while you look for a new source of income.
Or perhaps, instead of looking for a new job, you decide that you could make the same amount of money being a tour guide in Barcelona instead. Because you understand your costs and income needed to live well, you can make that informed decision. Knowledge is power, and when it comes to finances, it’s no exception.
So how can you get there?
We created a simple spreadsheet for you here:
Step 1: Add up your sources of income
Step 2: Add up your expenses
Step 3: Subtract your expenses from your income.
That’s it! For anyone looking for a more intense breakdown, we love using NerdWallet; check out their very comprehensive budgeting calculator/spreadsheet: NerdWallet Budgeting Worksheet
If you’re in the red (you spend more than you make), then that’s a clear sign that it’s time to cut down some expenses. This is the easiest way to balance the budget for most people. However, if you’re creative and/or a hustler, perhaps you could also figure out a way to simply make more money!
Once you’re making more than you spend, you can then start getting into the world of saving & investment, which is a ton of fun.
Here are some of our favorite tools you help you stay up to date with your personal cash flow (your income vs expenses):
- Mint App: Android | iPhone | https://www.mint.com/
- For daily/weekly/monthly budgeting & tracking
- Personal Capital: Android | iPhone | https://www.personalcapital.com/
- For a long-term view of your overall net worth across all debts, income/investments and more.
- NerdWallet: https://www.nerdwallet.com/
- Charles Schwab: One of the best online banks in the U.S. We highly recommend their High Yield Investor Brokerage, Checking and Savings accounts. https://www.schwab.com/