PersonalWealth #2 - Defining your lifestyle
In my previous article I was talking about the formula I applied when I started to learn about how to spend my money. I also gave you a solution for creating your own budget, in order to track your expenses and improve your financial health.
The meaning of financial freedom
When I first heard about financial freedom, I imagined it was like having a lot of money, travelling everywhere and doing whatever you want without having to work for the rest of your life. But being financially free implies more than having money. It’s about being able to live the life you’ve dreamed about.
I asked a lot of people: What will you do if you would have a lot of money? In 80% of the cases the response was: I want to travel and spend them on luxurious things. This life is not about consuming. It is about shaping the world by giving something to others.
Financial freedom has different meanings depending on people's needs. Someone could define it like having a safe job and travelling every year. Someone else could see it like having flexibility and being able to take more risks. However, the key is to live the life you always dreamed about.
What if I don't have money to live the life I want?
Define your lifestyle
Take a pen and a paper and start writing about your life as you dreamt about it. Forget about money for the moment.
For example, my dream life is having flexibility and free time to spend it with my family. Besides, I love travelling and I’d like to have a one-week vacation every three months.
Define how much money you will need, in order to live the life you want. Be specific. It shouldn’t be 100% accurate, but you need to have a very clear image about your expenses. You already know how much money you’re spending every month, if you have read and implemented what I was talking about in my previous article.
For example:
John budgeted his money and he realized that he spends 2000$ every single month. After he read this article he discovered that he needs 5000$/month to live the life he wants. So he applied this formula:
DESIRED BUDGET - CURRENT BUDGET = HOW MUCH I NEED
John knows that he needs to increase his income with 3000$.
Now, let me share with you how I’ve started to budget my money in order to become financially free.
Divide your net salary in 6 different budgets as following:
1) 10% Freedom - you will spend this money only when you’ll be able to invest them in a business or in something which will bring you passive income;
2) 10% Education - you always have to invest in your education, to become better in what you do; you may attend a training, buy some courses or books from your area of interest;
3) 10% Short Term Savings - you’d wish to go to a city break, you’d like buying a new car or maybe a house; keep in mind that if you want something expensive, you have to raise money every month until you reach your goal;
4) 55% Living - you will spend this money for day by day living;
5) 5% Play - you have to spend this amount of money every single month to reward yourself for your work;
6) 10% Contribution - you will receive spiritual gratification for donating a little amount of your income to people in need
Where should I keep this money?
You could open 6 different bank accounts or simply use six envelopes.
I can't apply this strategy because I don't have enough money to live
Take 10% of your salary and divide it using this strategy. Don't think about how much money you will have for each budget. It will help you to make a habit out of it. Once you will have enough money to invest in your education, be sure that your income will grow and you will be able to divide it all.
That’s all for today. If you have questions, please feel free to ask in a comment.