Goals vs Systems
Episode 150R
Episode Guide
Episode Timestamps
Show Notes for ChooseFI Podcast Episode
Episode Title: FI 101: Building the Blueprint to Financial Independence
Episode Summary:
Building a strong foundation for financial independence is crucial, starting with tracking expenses and creating a net worth statement. Establishing a clear financial picture allows individuals to make informed choices about their spending and prioritize valuable experiences over unnecessary expenditures. This process provides the freedom to slow down and reflect on what truly matters in life, beyond external validations like status and material possessions.
Key Topics Discussed:
- Podcast Intro
- Creating a life that aligns with your values: Brad shares his realization of the importance of routines and valuing consistent experiences over extravagant ones.
- Financial independence provides the freedom to evaluate your choices, allowing you to focus on intentional spending and aligning it with your personal values.
- Mindset and identity: How your mindset can shape financial decisions and personal growth.
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The Importance of Tracking Spending: Discussing how tracking expenses is critical for understanding financial habits and improving financial health.
- Actionable Takeaway: Start tracking all your expenses to gain visibility into your financial habits.
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Structuring Your Finances: Establishing a net worth statement and understanding your current financial situation.
- Actionable Takeaway: Develop a net worth statement to understand your financial standing.
- Viewing money as "life energy" and how this perspective can affect spending habits.
- Podcast Extro
Key Quotes:
- "Cutting $1k in monthly expenses saves you $30k toward FI."
- "Start your FI journey by understanding your current financial situation."
- "View your money as a representation of your life energy."
Actionable Takeaways:
- Track Your Spending: Document all expenses to understand financial habits better.
- Create a Net Worth Statement: Analyze what you own and owe to establish a financial foundation.
- Reflect on Your Spending: Assess if your expenditures align with your personal values.
Discussion Questions:
- What financial habits do you want to change or improve?
- How do you assess your own spending versus value received?
- What systems can you implement to simplify your financial management?
Resources Mentioned:
Related Episodes:
- Episode /017: "Brandon's Story"
- Episode /150: "Diana's Journey"
- Episode /009: "Travel Rewards Deep Dive"
Conclusion:
This episode serves as an introduction to financial independence fundamentals, urging listeners to track their spending, assess their habits, and start building a solid financial statement as part of their journey to financial freedom.
Next Steps: Join us for our next episode where we speak with David Hauser, author of "Unstoppable," to delve deeper into personal finance and decision-making frameworks.
Building a Strong Foundation for Financial Independence
Achieving financial independence is a journey that requires planning, tracking, and a deep understanding of your financial habits. As you embark on this path, it's essential to focus on the foundational aspects that will lead you toward your goal of financial freedom. Here are actionable steps you can take to establish a strong financial foundation.
Understand Financial Independence
Financial independence is having sufficient personal wealth to live without needing to work actively for basic necessities. It is more than just having money; it's about having control over your life choices. Understanding where you are today financially is the first step in your journey toward independence.
Track Your Spending
One of the most critical actions you can take is to track your expenses. This practice provides insight into where your money is going, identifying unnecessary expenses, and revealing patterns in your spending behavior.
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Action Item: Start tracking all your expenses. Use tools such as budgeting apps, Excel spreadsheets, or simply pen and paper to capture every transaction. This process might seem tedious, but it’s vital for gaining visibility into your financial habits.
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Tip: Over time, you can automate this process. Make it a habit to review your spending monthly, which ultimately could only take you a few minutes.
Create a Net Worth Statement
A net worth statement sums up your financial situation by listing your assets and liabilities. This exercise gives you a clear snapshot of your financial health.
- Action Item: Gather all your financial information and list your assets (bank accounts, investments, real estate) and liabilities (mortgages, credit card debt, student loans). Calculate your net worth to understand your position better.
The Importance of Mindset
Mindset plays a crucial role in your path to financial independence. Your beliefs about money and your financial identity directly affect your financial decisions.
Define Your Identity
Think about how you identify yourself in relation to money. Are you cautious, a spender, or a saver?
- Reflection: Consider adopting empowering identity statements. Instead of saying "I am bad with money," reframe it to "I am becoming great at managing my finances."
Focus on Systems Rather Than Goals
It's easy to get caught up in setting financial goals, but focusing on the systems that support those goals can lead to greater long-term success.
- Action Item: Develop reliable financial systems for budgeting and spending. Small, consistent habits like tracking expenses and budgeting create a foundation for achieving your larger goals, such as saving for retirement or purchasing a home.
Evaluate Your Spending Habits
Once you've tracked your expenses, take the time to reflect on them. Ask yourself:
- Does this spending align with my values?
- Am I spending my money on what truly matters to me, or am I succumbing to societal pressures and status?
By evaluating your spending habits against your core values, you can make adjustments that reflect what is truly important in your life.
Prioritize Experiences Over Things
Shift your focus from material possessions to experiences that enrich your life. Spending money on experiences has been shown to bring more happiness than spending on physical items.
- Tip: Create a budget that prioritizes travel, hobbies, and personal growth activities over items that quickly lose their value.
Utilize Budgeting Tools
Use budgeting tools to manage your finances effectively. Budgeting doesn’t have to be overwhelming. Many applications can help track your spending automatically, categorize expenses, and set financial goals.
- Recommended Tools: Consider using YNAB (You Need A Budget), Mint, or simple spreadsheets to help maintain clarity in your budgeting process.
Harness the Power of Travel Rewards
If you enjoy traveling, learning about travel rewards can enhance your finances significantly. Travel rewards credit cards can provide you with opportunities to travel for less, allowing you to invest more in experiences rather than accommodations.
- Action Item: Research the best travel rewards credit cards that fit your spending habits and travel preferences. Be conscious about leveraging these rewards while avoiding high-interest debt.
Connect with a Community
Engaging with a community that shares similar financial goals can provide support, accountability, and valuable insights.
- Tip: Join forums or communities, such as the one at ChooseFI, where you can share experiences, gather tips, and stay motivated on your financial journey.
Review and Adjust
Finally, regular reviews and adjustments are necessary as your life circumstances change.
- Action Item: Set aside time each month to revisit your spending, update your net worth statement, and adjust your financial goals as needed. This reflection will help you stay on track with your aspirations.
Conclusion
Your journey to financial independence starts with understanding your current financial situation and creating intentional habits that align with your values. By tracking your spending, creating a net worth statement, and adopting a mindset focused on growth rather than status, you're laying the groundwork for lasting success. Remember, financial independence is a choose-your-own-adventure journey, and you are in control of the path you take. Embrace these practices, and you’ll be well on your way to achieving your financial goals.
Building your blueprint to FI starts with the basics. A simple thing like tracking your spending can set you on a path that will change your life forever. Today, we get back to FI 101 and uncover the stark difference between goals and systems.
[elementor-template id="143609"]What Will Life After FI Look Like For You?
As you approach your goal of FI, you may start to daydream about your newfound freedom. The best part is that you get to choose what matters most to you and incorporate that into your life.
You get to choose. This is a choose your own adventure, you’re not locked into a nomadic lifestyle or a suburban lifestyle, you can do whatever you what. But the cool thing is and the important thing is to put a little bit of thought in on the front end to evaluate which financial decisions you’re making and then take the bandwidth that that affords you and create the life that you want for yourself.
Anywhere along the path to FI, you are afforded more freedom with each step. Even after you take the first step and leave the flight or fight mentality, you can start to see big possibilities. You'll finally have the chance to step back and determine what you want out of life.
What Do You Believe About Yourself?
As you determine what you want out of life, you'll be forced to uncover what you believe about yourself. What are the belief statements that you tell yourself about yourself?
A few common ones include:
- I'm not good with money.
- I have a shopping problem.
- I have a credit card problem.
Instead of combatting those negative beliefs about yourself, you continue to repeat this in your life. However, there is another option. You can start to change your mindset surrounding you and your finances by choosing to believe something different.
You could change that if you could just take a step back and say that was a choice to believe that going forward I’m going to believe something different, I’m going to believe a different narrative that I can take small actions, small choices that will align who I believe I am with my future goals. And then every day you get to make small votes in favor of this future self.
As you start to craft a new belief system about yourself, think about the version of yourself you want to become. You can take steps towards the best version of yourself one day at a time.
How to Build Your Blueprint
First, look at your mindset. Do you think you are good or bad with money? Who do you think you are in terms of money? The script you have created for yourself can be changed. What would the best version of yourself look like?
The best part is there is no right or wrong answer. You just need to find a way that works for you and your life. Remember, as you go through seasons of life, the script can change again. The beauty is that you aren't locked into anything.
Goals
You likely have goals, but do you know their deeper meaning? What is the why behind your goals? It is important not to stop at what your goals are and not to confuse your goals with a system. A system will get you to your goal one chip at a time. A goal without a system is unlikely to come to fruition.
If you have your systems in place, the goals are going to come on their own.
The goal of FI may be freedom. When you build this blueprint, it will inevitably lead to your freedom. As with all systems, it starts with the building blocks.
Tracking Your Money
In order to start building your blueprint as a system for success, you'll need to start with the simple steps.
Start by tracking your spending, tracking your income, and tracking your net worth. Take the time to get this all in one place. Be honest with yourself about the situation. You can improve it unless you know the whole story.
Tracking Your Income
Tracking your income will vary based on how often you get paid. However, you'll want to know exactly how much money is coming in each month. This number is your inflow.
Overall, your income should be relatively easy to track.
Tracking Your Spending
Your spending may be more difficult to track. You can start by tracking your spending for one month, but three months will show a more accurate picture of your average spending.
As you track your spending, start with the structural recurring expenses. These are expenses that are fixed and will always be a part of your budget. Then move on to your variable expenses such as groceries, gas, entertainment, and more.
Track down the root of each expense and determine whether or not it is worth its value. You'll need to keep this part of the tracking as a part of your routine. You never know when an expense may become expendable. Every $100 you can cut out of your recurring monthly expenses equates to $30,000 less in your FI number.
As for how you pay for these expenses, one option is to put all of your recurring expenses on a single credit card.
For example, Brad puts his recurring expenses on his Chase Sapphire Preferred card. When he wants to hit a welcome bonus for a new travel rewards credit card, he puts his other expenses on the new card. Currently, he and Laura are working towards the spending bonus of the Chase Hyatt Visa card.
If you are interested in learning more about how to maximize your travel rewards based on your spending, then check out our free travel rewards course here.
Related: My Favorite Budgeting Software: You Need A Budget Review
Tracking Your Net Worth
To move forward, you need to know where you stand. List your assets and liabilities to get your net worth number. We recommend Personal Capital for net worth tracking. Check out our full review here.
These first three steps are truly the start of your own blueprint to FI.
Community Feedback
Let's hear what our community has to say.
Note From Paul
Paul wrote in to comment on the wisdom of always keeping the economics about buying a car at the forefront of the discussion. Another important factor to consider are the safety features offered by the car.
While yes it is good to drive our cars as long as possible and not just get into the habit of buying the new car, lease the new car every few years, there are a lot of really great safety features out.
Take this into consideration when you buy your next car.
Thoughts About Goals And Diania Merriam
This week's episode speaks to the importance of knowing your goals. Diania once had the goal of becoming the world's highest-paid female CEO. However, the reason behind the goal was simply status. A cool job is one of many status-driven goals that many of us have.
We all have those moments where the goal tied to the status never works out well. But if its the goal that’s tied to what’s behind it, that can sometimes work better.
Remember, the status is just a hollow goal with external pressures. The most important thing to know about yourself is what you think about yourself when you are alone.
Just don’t care what other people think, that will not give you long term happiness. It just simply will not.
Take steps towards the goals that make you happy every day. Set up the systems you need to take you to where you want to go.
Check out the full episode with Diania here.
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