Hi everyone!
Hey!
Welcome back to our Live Life on Your Own Terms series.
We're actually in Park City, Kentucky right now.
We're just outside of Mammoth Cave National Park at the Diamond RV Resort…
…which is part of Thousand Trails.
We've got some pretty cool neighbors here. It's a really great day.
It's warm. We had to turn the A/C off.
We always have to make sure the A/C and the fans are off when we're filming.
So if we start sweating, I apologize.
This is episode 2 of: Life on Your Own Terms.
Today, we're going to talk about gaining financial freedom,
what does that mean and what are the steps that you can take to get there.
I'll let Joe rehash the homework assignment that we gave you guys last week and address that…
…before we move into talking about financial freedom.
At the end of last week's episode, which I'll link up here,
we gave you a homework assignment.
That was to list out all of the things you love to do,
some of the things you don't like about your life.
For us, that was working for someone else.
In the third column,
we had you start writing down some reasons as to why you couldn't live the life that you want.
I think when we talk to people and they tell us "we wish we could do that" and we say "you can",
the number one reason we always get is "because we have children".
We completely understand that that is a very valid reason as to…
…why you might not be able to live out of a motor-home.
But,
one thing we've learned is that if there is something you really want to do,
you'll figure out how to get over those types of obstacles and do it.
A perfect example is…
…there are a lot of RVers on the road today with their whole family.
They've got multiple kids, dogs, everything in RVs our size.
So the size of the RV doesn't limit what they can do…
…and a lot of them road-school.
They'll do it part-time so they'll take off entire summers…
…take their kids around the country or just do it for a semester.
This is something they really wanted to do, so they found a way to do it.
We've also met people who are still in the planning phase.
Their kids may be in elementary, junior high…
What they've done is plan that by the time their children are out of the house…
…and off to college or whatever they happen to be doing,
they'll be hitting the road. So they've given themselves a runway of 5 to 10 years, let's say,
and said "in these 5 to 10 years, here is what we want to do…"
"…here is the plan and how we're going to make it happen".
And that's kind of what we did.
We planned for about five years to get on the road,
and it took a lot of work, and we don't have kids, so that was one less obstacle for us to get past.
But,
It was a lot of planning and financial freedom was a big part of it.
The second reason we get is people will say "I can't leave my job".
"I need my income, I have bills to pay and everything else."
That kind of dovetails into our discussion today about financial freedom.
Financial freedom is the ability to live your life however you want it…
…because you've paid off your debts and you're not a slave to your job anymore.
The first step of being financially free is paying off your debt.
First and foremost is any unnecessary debt.
Car loans or credit cards, those really weigh you down.
In order to be financially free, you need to eliminate that debt from your life…
…so that you're no longer a slave to your job.
Because every month, those bills come due and you have to pay them.
So if those bills are gone, a lot more of that money stays in your pocket…
…and you can put it into savings and eventually live the life you want to live…
…because the money you're earning is going back to you. You're investing in yourself.
So how do you actually gain financial freedom?
I'm going to talk about the steps that we took to get there. Hopefully that will help you…
…be able to reach financial freedom as well.
The very first step, and really important step,
is being able to get a holistic picture of your current financial situation.
What that means is taking out a piece of paper and a pen and writing down…
…all the money that you have coming in, your job, or multiple jobs, any investments that you have.
Make a list of all of that.
Separately, make another list of all the money that's going out.
Everything you're spending money on from gas, to groceries, to entertainment, travel…
I'll link to our latest expenses report.
You can see how we're breaking things down.
We kind of bucket certain items.
You need to make sure that…
…you account for every penny that comes in and also every penny that goes out.
If you give someone $10, that needs to get written down somewhere.
In another column, write down all the debt you have.
If you don't have any debt, that's great.
But if you do, make sure to include all your credit card debt, school loans, car loan, mortgage.
Then separately, make a list of all the savings that you have.
So if you have a 401k, an IRA,
maybe a savings account or multiple savings accounts where you're putting money,
write that out separately so you have a good idea of what your savings look like right now.
And it's not just savings, look at any investment accounts you have, money that is put into…
…a company or other thing that is somehow going to earn you a return.
But it's good to note which of those assets is liquid,
meaning you can run to the bank and withdraw it all right away,
and which are you not able to touch without penalty until you're retired.
[A/C humming]
Sorry for the background noise.
We had to turn on the A/C. It's getting really hot in here.
It's either the hiss or Leo panting.
And I think you guys would all prefer the A/C hiss.
Now that you have an overview of what your current financial situation is,
it's time to really focus on budgeting and saving.
In looking at your financial picture,
if the money coming in is greater than the money going out…
…then I would say you're in a pretty good spot.
It's very easy to take that extra money that's coming in…
…and put it all towards your debt and paying that off.
However, if you're finding that the money coming in is less than the money going out,
we really need to focus on what that extra money is going to and how to cut that down.
So as an example,
if at the end of this exercise you realize that your household has $3000 coming in after taxes…
…but you're spending $3500 a month,
that means you're spending an extra $500 going into further debt and we have a big problem.
Look at all the money that's going out and figure out what you can eliminate from that.
If you're going out after work to happy hour and buying rounds all the time,
you need to cut that out.
Figure out how much that can save you every month…
…to get you closer to being able to spend less every month…
…and have extra money to put towards your debt and paying that off.
Being able to itemize every penny that's going out is going to be very beneficial.
And be honest. If you have a household of three or two,
you have to be really honest with each other about where that money is going.
And this isn't a one-time thing.
You'll need to come up with your budget, but you'll have to reconcile that every month.
That means if you're using credit cards,
going through your credit card bill and looking at the all the money you spend…
…and being able to break that down into different buckets.
But if you're spending cash,
you better keep a list of where that money's going and how you're spending it.
You really need to be able to break those chains from your debt and get free.
There are so many little things and tweaks that you can make in your life…
…to cut down on the amount of money that you're spending, but still be able to enjoy those things.
When we evaluated how much money we were spending at restaurants,
we realized that we could go out, buy fresh organic food, make it at home and still be spending less…
…so that we were saving more money.
You really have to change your frame of mind and be a smart spender.
Price checking when you're at the grocery aisle, buying stuff on sale,
don't go out to eat at restaurants, ordering stuff to go instead of dining in…
…using gas money to figure out the cheapest gas price in your area,
taking advantage of early bird specials or…
…if you know something is going to go on sale and you don't need it right away, wait to buy it.
Certain things are good to buy in bulk and taking advantage of that cost savings.
Every little bit counts.
We do go to Starbucks quite a bit and we have a Starbucks app on our phone…
…where we build points and we get free coffee refills.
Those add up. Imagine if you drink a lot of coffee,
you might as well make it work for you and start earning points…
…but making sure that you don't get out of control going to Starbucks all the time.
That works for credit cards as well.
We put everything we buy on a credit card, but we have credit cards that earn us cash back…
…so at the end of the year, we're getting 2% to 3% back on everything we spend money on.
Now 2% to 3% doesn't sound like a lot, but if you consider a year's worth of spending,
that does add up to a nice check that we get and it's money back in our pockets.
And the one thing we do is pay that bill in full every month regardless.
We don't overspend and if we have a big purchase, then we need to take that money…
…out of savings and pay the bill down so we're not blowing money on that interest payment.
I think the important thing about budgeting is…
…keeping that in mind whenever you're out and you're spending money,
don't forget that you have a budget and you have a goal.
The goal is to pay off all your debt and start putting money aside…
…so that you can gain financial freedom and be able to live the life that you want.
So now that you've got your budget,
we can sort of transition into the next step, which is all about paying off your debt.
- What? - Joe's out of coffee.
We might have to stop and make him another pot.
[both laugh]
You should have a pretty good idea of how much money you can save and put towards paying off your debt.
That's what the third step is all about.
The best way we found to pay down your debt is to look at that list…
…and order everything by which one has the highest percentage.
I'm assuming that a lot of your credit cards are going to be 18-20%.
That's stuff you're paying every month. That money is just vanishing into thin air.
Take that payment, let's say it $100 a month. Add the $400 you saved because of your budget.
You're now paying $500 a month.
And as you make more money or you're able to save more, put that towards your credit card.
Start getting that paid down.
Once that's paid down, take that $500 and apply it to the next thing.
You'll be surprised at how quickly you can pay this stuff off.
That even includes your mortgage.
Once you have this big ball of money rolling down and knocking down all of your debt,
you can start applying it to your mortgage as well.
You'll be paying down tons of principal month after month.
One example of paying off debt is a student loan that I had.
I actually attended law school for a semester. I decided it wasn't for me.
That semester, I ended up with almost $11,000 of student loan debt.
I got a job, luckily, after I left law school and it paid I think $34,000 a year.
So I was making $34,000 a year, I had an $11,000 student loan.
My entire focus was to pay off that student loan and I was able to do it within six months.
It's doable because that was my entire goal.
And I was still able to live a good life.
Granted, I was living at home, but I knew my goal was to pay off that debt.
So I held off on getting an apartment…
…and then the minute I paid it off, I was able to get an apartment for myself.
- It's all about priorities. - And you also had a car payment at the time.
You were paying down your car and everything else.
All of this advice is coming from actual experience. Before I met Kait, I had credit card debt.
When we met, she was actually considering not dating me because of the debt I had.
I had school loans, I had car payments, I had an apartment.
All this money was going out.
Together, we really figured out how to pay these things off as quickly as we could.
I think we both had a sort of different mindset.
I grew up with "you don't spend money that you don't have". That's how I grew up.
And never did I ever imagine that I would take out a loan, or that I would have credit card debt.
Now, going to law school, I saw as an investment…
…so I took out the student loan with the intention of paying it off once I graduated.
And I came from a mindset of "hey, I want that new big screen TV,"
"so I'll put it on my credit card and pay it off as I can."
Now for us, credit card debt is almost a 4-letter word.
There are people that if you have a credit card and you can't help…
…but break it out every time and start spending money…
…and you're not able to track that and pay it of every month,
you're the type of person that needs to get rid of any kind of credit card.
For us, the credit cards we have, those bills are paid in full…
…every single month without exception.
Once you're done paying off all of your debt it's time to save money.
And that's the next step.
To really put all the money that you're putting towards your debt into your savings.
That can mean a variety of things: looking for possible investments…
…to have passive income, to putting it in a CD, or just in a savings account.
But really, doing some research
and figuring out how you want to allocate that money into your savings…
…and really investing in yourself.
It's easy to say once you're done paying off all your debt…
…to have this extra money left over and start spending it on stuff again.
But really focus on putting that money into your savings will help you stay ahead of the game.
One example is when we got done with debt and we were planning this trip,
for those five years or so, we had a house and we were paying the mortgage down…
…but we didn't take all that money and start applying it into our mortgage.
We started applying it to our savings…
…because our plan was to work for ourselves and get on the road.
We felt in order to do this we needed as much money saved as possible.
And we wanted to have at least a year's emergency fund.
We start planning for that, and when you start saving, come up with a plan as to…
…what you want to do with that money. Is it save it for retirement?
Or is it save it for some adventure you want to take in five years?
Really come up with "what am I doing this for?" and "what am I putting it towards?"
To be clear, saving money isn't about stashing it away in a mattress for when you're 65,
which is totally fine, but it's putting it towards what you want.
To be able to live the life that you want.
One thing you'll need to do is to continue to reevaluate your budget as you go.
Always take a look at what you're doing and say:
"does this budget still make sense for me and my family?"
A lot of times you'll look at it and say "you know what?"
"I think we can be putting more money towards our mortgage" or "more money towards our savings".
Or, "we've gotten back into some bad habits and somehow our credit card bills have gone back up".
So it's good to circle back, look at what you're doing and just reevaluate.
The other thing is also reevaluating your budget for what you want your future life to be.
For us, when we were working full-time, we had a house, a mortgage, car payments, etc.
We had one budget, but we needed to reevaluate that budget for life on the road…
…because everything was totally different.
When we were doing our planning for our savings,
we looked at this monthly budget we planned to have on the road, and saved for that.
That became our plan going forward.
Throughout the five years that we were planning for this life,
we always made sure we had a fun budget.
It wasn't extravagant, but I think it's important to not lose sight of that.
Have fun because that's what this is all about. It's really enjoying your life.
Just don't enjoy it to the point where…
…you wake up one day, you open up a credit card bill and realize you owe $50,000.
Enjoy responsibly.
Your homework assignment for this week is to start making that list of your total financial picture.
All the money you have coming in, all the money you have going out.
Really figuring that out, because next week we're going to get into the planning phase.
This kind of takes what we've talked about: figuring out the life you want to live.
And now, you can figure out how lon it's going to take you to get there.
Thank you guys for watching. We'll see you next week!
Bye!