Five Keys to Financial Freedom: Week 3

Key 3 – Rightsize Your Life and Set Goals

It’s week three of our financial independence journey and this week’s key is lifestyle.  Time to tackle rightsizing your life and living within your means and setting some goals. Living within your means does not equate to living like a pauper. It’s not about that. It’s about matching your monthly cash flow to your basic needs and to your goals. Obviously, food, clothing, and shelter are your top priorities otherwise you will not be able to earn a living. There also has to be some room in your cash flow for the non-necessities, those discretionary items that make life fun and worth living. Plan and budget for both the discretionary and non-discretionary expenses. So, how do you rightsize your life?

No matter where you live, start with the big-ticket items; housing, health care, and transportation. Do you really need the size of home you are renting or buying? Yes, extra space is nice for guests and it always feels good to live in the best part of town, with a nice home and all the toys. But this is where you need to be brutally honest with yourself and ask, are you living above your means? It doesn’t mean that you need to sell everything and move, but you should make some adjustments.

- Start with immediate home and family. Tell adult children living at home they must start paying a portion of the utilities and even rent.

- Have more space than you need? Time to consider monetizing that space. Nothing wrong with considering a roommate as an adult or even renting out part of your home. It’s a means to an end and does not have to be permanent.

- Consider a smaller, more affordable home or apartment.

Health care is a tuff nut to crack. This is one area where saving any money is particularly difficult. But you do have some options. First of all, consider lifestyle options. Eating better and getting a little more exercise is a great way to combat many future health costs. Shop coverage. Who has the better coverage between you and your spouse? Evaluate if you need to drop coverage from one employer in a two-income household. Younger and healthier? Consider if an HSA plan will save you money. Bonus: it can double as a secondary retirement savings plan!  Small changes over time can have a big impact.

Transportation has changed due to the pandemic. If you and your spouse are now both working from home, and you each own your own car, consider if you really do need two cars. You may free yourself from a car payment, insurance, and maintenance. Compare the cost of a year’s rideshare expense versus owning your own car if you are still commuting.  Still need to own? Consider buying a car that is 12 – 24 months old. New cars depreciate immediately so you can save yourself a lot of cash by researching a recently owned model that may still be under warranty. Look for low mileage, good resale value, and a model that has been dealer serviced or is certified pre-owned and has never been wrecked or had a major repair.

When setting any of these goals, use the SMART method. Make sure your goals are Specific (save X% more), Measurable (how much per week, month, or year), Achievable (but challenging), Realistic (does it fit your overall plan), and Timely (have a beginning, and a target end date). Use this SMART goal approach with all financial goals. You can use SMART goal setting and apply it to other rightsizing moves such as the following.

- Survey all paid services: entertainment, meal prep/delivery, media, club memberships, etc.  Cut those expenses and redirect that money to yourself! Chances are you are paying monthly for things you rarely, if ever, use. 

- Get an app to help you track spending. If you find that you are eating out five nights per week and hitting the local café three times per day, you’ve just identified a spending problem and a savings opportunity. When it comes to savings, remember that is a way to pay yourself!

Sell your stuff! Seriously, take a look around and see what items you no longer need. Sell off your old sports equipment, antiques you no longer like, collectibles that are not gaining value, tools, books, art, anything you can live without and that you were never really attached to can go! It’s a good way to raise some quick cash for your emergency fund.

Again, you don’t have to be a pauper but really think about how much you are spending on things you don’t need. Consider rightsizing your big-ticket items such as housing, healthcare, and transportation. Think about the items and services you actually need and that bring you joy and enhance your life. Match your cash flow to these items and let the others go. You’ll be glad you did.

As an independent Certified Financial Planner™, I can help you decide how to rightsize your life. Contact me and let’s get started! #talktometuesday #rightsize #Hireaplanner #bonus #income #cash #CFPPro #housing #FiveKeysToFinancialFreedom #FinancialIndependence #CFPPro #goals