Becoming Financially Free & Independent: What I Have Learned About Personal Finance So Far

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Since I have simplified my life I have learned quite a few things about budgeting and personal finance. Sure, the basics of budgeting my mother taught me, but if you live a minimalist life you will sooner or later see the financial benefits and will want to use them to their full potential.

Today I want to share some tips that have helped me build an emergency fund and a decent financial cushion. I'm prepared for many occasions in my life.  Although I'm not financially free or independent yet, I have a lot to learn still, but I have come a long way. These are things I used to never put into consideration but they make a big big difference.

I know it's a tricky and dry topic but it is very essential to have an understanding about money and finances to help achieve your goals in life. While money can not buy you happiness, it certainly can buy you security, health and independence!

1. Have A Budget

No matter what you earn, if you do not know how much money you have, what bills you have to pay and how much you spend, how are you going to save?
If you do not already have a budget I would recommend you to do the following:

• Keep the receipts or write down the costs of everything you purchase for a whole month. This is tidious but if you do it right you only have to do it once. You can of course do it longer than one month to see if certain expenses fluctuate. But in my opinion you don't have to, you will notice that later on. Because from now on you notice it, since you're doing a budget.
• Seperate in categories and list everything up (for example: groceries, toiletries, medicine, cleaning products, gas for the car etc.)
• Filter out the areas of your biggest expenses and if they are neccessary and wether you can reduce the amount you spend on them and how. 
• Set a budget for every category of your spendings. Also divide into fixed costs and variable costs. Your rent is a fixed cost, the money you spend on your entertaiment (going to the movies, shopping, eating out etc.) will most likely be a variable cost since you do not spend the same amount every month. 
• Now get yourself a journal. Physical or digital, it doesn't matter.  Dedicate this journal to your personal finances and budgeting.
• On one side of the sheet or paper I want you to write down everything your earn. This side is going to show you your income. If you have multiple incomes list them here, but if payments vary make sure to mark them as a variable income.
• Now write down all your monthly expenses on the other side of the sheet or paper.  Divide them into fixed and variable costs.  Now it will be obvious how much you deviate from the budget you just set for yourself. 
• If you now subtract the sum of your expenses from your income, you will have the amount of money left that you can save every month living your current lifestyle with your current financial habits. You can always tweak them later and become better at that, so don't get frustrated if it's not a lot that you can save right now. That's why you're doing this budget after all, to get behind your finances and optimize them.
• Now I want you to make such a listing or chart every month to track your expenses, your income and savings. Over time you will realize patterns and these patterns will help you save even more money in the future (I will make a seperate blogpost on how to cut your costs and optimize your budget in the future).

Tadaa, you made yourself a budget. Now make sure to stick to that budget and keep track of it.

2. Set Financial Goals

It is important to aim towards a goal. If you do not know what you're saving for and why you're doing it in the first place, it's going to be harder to achieve. If you have a goal in front of you it will motivate you more and creating a step by step plan to work towards will also be easier. Try to be as specific as possible. Something I have done is to write my financial end goal for the current time in my life next to my monthly budget to motivate me. 

3. Stop Consuming Unnecessarily 

In our today's always consuming, wasteful throw away culture it's easy to not have any money left at the end the month. But you can outsmart the system with a more minimalist approach. Live below your means and only buy what you need.
Always keep one quote in mind before purchasing something you know you actually don't need:

Rich people stay rich by living like they're broke.  Broke people stay broke by living like they're rich.

4. Start Saving

After you created a system with your money and observed where your money goes you will be so much more aware in what areas in your life you can save money. If you're smart about it you are not going to touch your new savings. Keep them on a seperate bank account or mason jar or have you. You get closer to your goal everyday now. Your goal is approachable and not untouchable anymore. It is indeed realistic.
If possible you should divide your savings into different categories. You want to consider saving up for:

• Emergency Fund
• Run Away Emergency Fund (about 6 - 12 months worth of saving to start all over)
• Your Retirement 
• Travel 
• Education/ Your Career

So start saving and don't touch it.  It doesn't matter how much you can save in the beginning. Try to save money on a daily or weekly basis. Start small and learn along the way.
However, if you have any form of dept, student loans, a mortgage, anything to pay off, I will tell you the opposite.

5. Pay Off Your Debt

If I have learned anything about financial freedom in the past couple of years, it is that is doesn't make any sense nor help you to simply save all the money you can if you actually have things you need to pay off. In that case forget point 4. It doesn't apply to you yet. I would guess that paying off your debt is a part of your plan and you already work on it. Just making sure we are on the same page.  I understand how frustrating it is to save a bunch of money and not see it because you need to pay for your debt, and therefor it's harder to see your progress... but believe me, it's worth it! It's so worth it because being in debt causes so much mental stress. You want to free yourself from that first.

6. Build An Emergency Fund

The idea of an emergency fund is to be able to cover urgent emergencies of your personal essential needs. For example if your washing machine, your phone, your laptop and your fridge break all at the same (no matter how unrealistic this may seem - life is unpredictable) you should be able to replace all of these items and cover the cost with your emergency fund.
Or if your car breaks you should be able to cover the repair costs as well. Same if you have an accident and you need to pay for medical bills and the stay in the hospital.
Meaning: you are in no shape or form distressed by those unfortunate situation. Because you're prepared. You're covered (financially).

The amount of money you want to keep in your emergency fund varies widely. It depends on everyone's personal situation. If you are single living alone with no car your emergency fund is maybe 2000$.
If you are a married couple with a car (maybe even a house) you may find 5000$ are needed to save.
Or if you are married, have kids, a house and a car you want to keep even more in your emergency fund. It totally depends on you.

An emergency fund, after paying off your debt, is the most important thing to save up for. It will make you so much more free.
You should always have that money on hand. And it needs to be a real emergency (as mentioned above) to use it. Not a party or a purse or the new iPhone.
After you used the money in your emergency fund, it should be your next priority to build it back up.

7. Build A Runaway Emergency Fund

I call this the secondary emergency fund. This fund should cover you for 6 - 12 months if the absolute worst case scenario in your life happens. If you lose your job for example, or you lose a huge amount of money for whatever reason. Then your runaway emergency fund should hold you over water, while your income may be uncertain

This one not everyone will find neccessary. However I repeat: life is unpredictable. In a devastating situation you might find yourself want to start a new life, fresh and from scratch. Maybe move cities or countries, maybe switch careers, maybe become a full-time traveler or start your own business. In these cases a runaway emergency fund comes into play.

I personally think everyone should save up for one to be equipped in life. But since it's only for the worst case scenario it comes last.

This is what I have learned about finances and financial freedom so far. Again: I realize I still have soooo much to learn. But if I got something out of this wisdom it is that I'm not afraid of money anymore. I understand the importance of money but also the abundance of it, all the challenges but also opportunities that comes with having money. I hope you could get something out of this post and don't see money as the devil anymore. Money is just money. It's a tool. And it's up to you what you make out of it.