Today, I am going over step two in my
five by two financial freedom
framework,
which is all about setting up
a budget or a spending plan,
like I like to call it and
understanding what your net
worth is.
I am Tiffany Thomas with
wealthy tiffany.com
and I achieved financial
freedom and became a
millionaire.
If you're looking to do one or
even both of those things,
make sure to hit that like
button and hit the subscribe
button.
And we're going to dive right
in. I recently shared my full five
by two financial freedom
framework.
It's essentially the five
steps to achieving financial
freedom.
And I want to go into more
detail about the step two of
my framework today,
which is all about
understanding where you are
currently with your finances.
And that includes setting up a
spending plan and knowing what
your net worth is.
Because if we don't know where
we are currently,
we can't make progress.
I really like this quote it is
from the book,
the millionaire next door,
which if you haven't checked
that book out yet,
I would highly recommend it.
I will leave a link in the
description to the book.
The quote says the majority of
self-made millionaires budget
and track every penny,
they know how much they spend
on groceries,
gas and every other household
line items.
So a lot of millionaires track
everything that they are
spending.
They know exactly where their
money is going to.
So if you are looking to
become a millionaire or become
financially free,
you want to make sure and
track exactly what you're
spending.
And I know a lot of people
like to set up a budget.
That's what they like to call
it, but I like to call it a
spending plan.
It sounds a lot more fun to
set up a plan,
to spend your money.
And by creating a spending
plan that helps you figure out
where you are now,
and then it guides you to
where you are going toward
financial freedom.
It shows all of your income
and all of your expenses.
And one thing that I like to
include in my spending plan is
goals that I am working
toward.
For example,
if you want to take a vacation
to Italy,
then you can add that line
item into your budget or your
spending plan.
And then you can contribute a
certain amount each month
toward your Italy fund.
And that way it's a little
more exciting to update your
spending plan,
because you are actually
focusing on goals,
things that you want to work
towards.
Or for example,
if you just need to build up
an emergency fund,
then you can definitely make
that as a line item in your
spending plan so that you can
have a certain amount you are
working toward to have as your
emergency fund.
For example,
if you want to have $5,000
in the bank as your emergency
fund,
then you can add that into
your spending plan and you can
contribute a certain
percentage of your income each
month or a certain dollar
amount until you get to that
$5,000.
And then you can replace that
goal with something else like
your Italy vacation.
Let's talk a little bit more
about setting up your spending
plan so it works for you.
I personally like using a free
app, it's called Personal Capital
to manage my spending plan.
The reason I like using
Personal Capital is because
you can hook all of your
financial accounts to Personal
Capital so that you can see
your complete financial
picture in one place very
quickly.
For example,
if you have different credit
cards that you use,
if you have a mortgage payment
that you are making and you
have a checking and savings,
a 401k,
you can hook all of those
types of accounts to Personal
Capital,
and it will show you each
transaction that goes through
each of those financial
accounts.
So you can see when your
paycheck is deposited into
your checking or your savings
account,
you can see when there was a
purchase made on your credit
card,
and then you can also see how
much you have invested in your
retirement accounts.
And one other thing,
it shows you is your net worth
of which we were going to talk
about a little later in the
video.
And then since I do like
finances so much,
I have a Google sheet that I
update on my own.
I export transactions into my
Google sheet.
So it makes it easier to
update,
but I can just kind of see all
of my data in a spreadsheet.
I like having both of those
things, personal capital and my
spreadsheet or Google sheet to
help track all of my finances.
And if you are interested in
setting up a free account with
personal capital,
I will leave my referral link
below and you can click on
that to get your account set
up. But if you want to set up a
spending plan in a Google
sheet or a spreadsheet,
you want to list out all of
your different sources of
income in the top.
And I'll show you an example
in just a moment.
And then you want to list out
all of your expenses.
And I like starting with my
fixed expenses first,
and then my variable expenses,
for example,
your fixed expenses would be
any amount,
any expense that doesn't
change month to month,
for example,
your car payment or your
mortgage payment or your rent
payment,
things like that.
It's a fixed amount.
So those are really easy to
enter into your spending plan.
And then you can move to your
variable expenses and that
might be your utilities for
how much you are spending on
groceries.
And then at the bottom of your
spending plan,
I like to know the net income.
So all of your income amounts
minus all of your expenses,
and you can make sure that you
are not spending more than you
are bringing in.
And like I mentioned before,
make sure input all of your
goals into your spending plan
into your budget so that you
can see those every single
time you update your budget
and make sure you are working
toward the things you want to
be working towards.
I want to share another quote
with you.
This one is by L Tom Perry and
he says,
pay yourself a predetermined
amount directly into savings.
It is amazing to me that so
many people work all of their
lives for the grocer,
the landlord,
the power company,
the automobile salesman,
and the bank,
and yet think so little of
their own efforts that they
pay themselves nothing.
So you want to make sure you
were paying yourself first.
And that's why I like adding
those goals in the top of my
spreadsheet,
the top of my expenses,
because I do want to make sure
that I am building up an
emergency fund or that I am
making investments or working
toward a fun trip to take.
We don't want to paying all of
our bills and then not having
any money left for ourselves.
And here's an example of a
spending plan that I have
created,
and I've just entered in some
dummy numbers.
These aren't my actual
numbers,
but you can see at the top,
I have income sources very
first.
So if you're receiving a
paycheck,
any extra income that you
might bring in from a side
hustle or something like that,
or if you do have rental
properties like I do then you
want to make sure and include
that amount in your spending
plan.
And then I moved to all of my
expenses.
So you can see,
I have goal number one,
goal, number two at the very top.
And then I have a tithing and
then the rest of the expenses.
So you can set up your own
spending plan so it works for
you.
Maybe you need to break things
down even further,
or maybe you need less
categories.
You want to make sure that
it's not overwhelming that you
aren't going to update your
spending plan,
but you want to make sure that
it is effective.
So you are actually tracking
where all of your money is
going and how much is coming
in.
And then at the very bottom,
I have that net income number.
So your income,
all of your income,
and then subtracting out all
of your expenses,
that is your net income.
You definitely want that to be
a positive number or a $0
amount.
And a lot of times people ask,
well,
how much of my income should I
be spending in certain
categories?
So I did find this pie chart
online to kind of give you an
estimate on what people are
spending in each category.
For example,
people usually spend about 35%
on their housing costs and
then 15 to 20% on
transportation and then 10 to
20% on food.
And then you can see a
breakdown of a few other
items.
So this is kind of the average
just to give you what I did
and kind of compare where
you're at in regards to the
majority of other people.
But I don't want you to get
fixated on exactly spending
these amounts in each category
because personal finance is
very personal.
It's more about what we need
instead of what others are
telling us that we need.
So if we have a really high
debt amount,
we probably want to be putting
a lot of our money toward
debts,
and that would include
reducing our housing expenses
so that we can put more money
toward paying off our debt.
I just wanted to share these
estimates with you,
but help you realize that you
don't need to be following
these estimates because it is
very personal.
Tell me in the comments,
if you already have your
spending plan set up and if
you are updating it every
month.
And then let's talk about part
two of this section on where
we are currently,
and this is tracking our net
worth and what exactly is net
worth?
It is our assets minus our
liabilities.
Why it's important to track
our net worth?
Tracking our net worth gives
us a good indication of our
overall financial health.
We can see if we are
increasing our investments and
paying down our debt.
We kind of have that big
financial picture when we are
looking at our net worth
instead of just focusing on
very small expenses or getting
caught up in different
transactions.
This just gives us an overall
view of our complete financial
health.
And one thing that I really
like about personal capital is
that it does track your net
worth for you.
You can actually enter in the
value of your home,
if you own a home,
you can enter in the value of
your car and different things
like that.
And then you can really see,
okay,
I have this amount in assets
and this amount in
liabilities,
and it gives you a number at
the top,
which is your net worth.
And it will also show you a
graph so you can track it over
time, which is really fun.
Another benefit of tracking
your net worth is that it's
actually more important than
just tracking our income,
because if we have a really
high income,
but we are spending all of our
money,
then we don't really realize
that if we're just tracking
our income.
So we want to track our net
worth everything that we owe
minus everything that we own.
And then you can also see your
progress over time.
You can measure that.
Hopefully it is increasing
over time instead of
decreasing.
And of course,
if you have investments and
the stock market goes down,
then your net worth will drop.
But over the longterm,
we want to see that number
increase.
And I know this was really
exciting for me,
as I was tracking my net
worth,
when I hit that million dollar
mark,
I saw that in personal capital
when I logged in and I was
super excited about that.
But if I hadn't been tracking
my net worth,
I wouldn't have known when I
hit that million dollar mark.
Another benefit of tracking
our net worth is that it
emphasizes investing,
which is really,
really important.
We want to make sure that our
money is working for us and
not just sitting in our
savings account.
We can watch that number,
our investment number grow
over time because of compound
interest.
It'll grow exponentially,
which doesn't happen if you
just have your money sitting
in a savings account.
So if you are tracking your
net worth,
then you can really see your
net worth increased by drastic
amounts without even
increasing your own income.
And I know I have seen this
recently because I own
multiple properties and I have
seen the value of those
properties increased
drastically over the past few
years,
which has made my net worth
increased quite a bit.
It also provides a motivation
to eliminate our debt.
If we can see a lump sum of
what our debt amount is,
and then we are tracking our
progress of paying down that
debt,
it motivates us to pay down
that debt even sooner and
tracking our net worth just
also helps us manage our money
better.
If we look at that overall
picture of our complete
financial health,
then we can realize where we
can make adjustments.
Maybe we need to be investing
more of our money,
or maybe we need to be eating
out less.
But if we aren't tracking
this, then we don't know those
things.
One other thing I want to
bring up is to not let your
net worth determine your self
worth everyone is on a
different path.
Some people have a really high
net worth.
Some people have a negative
net worth and some are just
floating around the zero,
wherever we are on our
journey,
that is not determining our
self-worth.
It's just giving a picture of
where we are currently.
And that we know that we can
make improvements and make
progress and increase our net
worth over time.
And then let me share an
example of exactly how to
determine your net worth.
So in this example,
we have everything that we
own,
which is a house valued at
$600,000.
And we have a car valued at
15,000.
We have money sitting in our
checking account,
which is 2000.
And then we have money in our
savings account at 10,000.
And then let's say we have a
401k and we have $200,000
in there already.
And then we have a Roth IRA
valued at a hundred thousand
dollars,
which gives us a total of
everything that we own all of
our assets of $927,000.
And then we want to take a
look at everything that we
owe.
So that could be our mortgage
loan at $400,000
and then an auto loan at
$5,000
and then student loans at
$20,000.
And then maybe we have some
credit card debt at $2,000.
So that would give us a total
of $427,000
of what we owe.
So if we want to determine our
net worth,
we are going to take that
$927,000
subtract out that $427,000
to give us a net worth of
$500,000.
So I want you to figure out
what your net worth is or tell
me in the comments,
if you already know what your
net worth is.
So those are my two elements
of figuring out where we are
currently so that we can
achieve financial freedom.
And if you missed my other
video about step number one,
I will leave a link to that
above and below in the
description.
So make sure you check that
one out.
And then I do have a video of
an overview of my complete
five by two financial freedom
framework.
So I will leave a link for
that one as well,
above and below in the
description.
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Thanks so much for watching.
I'll see you in the next
video.