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Financial Freedom:  Keeping that Bait on the Hook

I sent an article earlier this year on the topic of Financial Freedom which was designed to be the start of a series. Then, as you know, the pandemic arrived and I pivoted to articles more relevant to the current events. I would like to return now to the topic of Financial Freedom which, if anything, is even more relevant to all of us given the uncertainty of our times. If you would like, please review my February article on the definition of Financial Freedom which discussed just what financial freedom means to you. This article will focus on how your spending choices impact your financial freedom.

I have noticed that some people get antsy with their money. It burns a hole in their pocket. If they have extra money, they look for how they can spend it. As I have taken some time off to fish this summer, allow me to share a fishing analogy with you to illustrate. Imagine a fisherman in his boat. Under his boat is a school of fish. However, instead of baiting his hook with hot dogs and throwing the line overboard, he eats them instead. Hundreds of fish are right under the boat. . . some of them whoppers. Yet, with no bait on his line, the fisherman certainly won't catch anything. That bait is your money. Eating the bait (spending your money) provides instant gratification but eliminates the chance to hook the biggest fish of your life — financial freedom. Making the choice to regularly invest your money rather than spend it is critical to attaining financial freedom.

Here are some thoughts on spending I would like to share to help you hook that fish.

  1. Equate buying now with saving for tomorrow. As in the example above, every dollar can be spent today or saved for tomorrow. Ask yourself, "Do I really need to buy that now?" It is easy to get in a habit of purchasing things because you can and it makes you feel good, at least in the short run. If "saving" becomes another way to "spend" your money, you can satisfy the urge to spend by simply socking away your surplus funds and imagining your future financial freedom.

  2. Beware of the snowball effect. Have you ever made a purchase decision that snowballed into a much larger expenditure? For example, a couple lives in a small apartment which works fine for them until they decide to get a dog. Before they know it, they are upgrading to a bigger house near a park because they no longer fit in the apartment. I'm not telling you not to buy a dog. But, be aware of the potential snowball effect before making any big decision.

  3. Live below your means. This means not going into debt to purchase unnecessary things. The only exceptions I would make to this would be a reasonable home mortgage, auto loan (if absolutely necessary to commute to your job), and student loans. Many wealthy people practice frugal habits such as cutting coupons and shopping at discount or thrift stores. One of my frugal habits is having my wife cut my hair at home (even before pandemic home haircuts became popular). Living below your means doesn't mean you have to adopt a minimalist lifestyle, but rather simply be more discerning of wants versus needs. You can live a life to the fullest with less. Do you have frugal habits you are willing to share? If so, post them to my Facebook page. If you share an idea in the next three days, I will enter you into a drawing for one of five available $5 Starbucks gift cards that I will send you in the mail.

  4. Find an accountability partner. For married couples, you have a built-in accountability partner in your husband or wife. For singles, your accountability partner could be a trusted family member or a responsible friend. This person should be willing to discuss your big money goals and be there to talk through big purchase decisions. Though I am not with you day-to-day, I am always available to fill this role and act as a sounding board for your financial decisions.

  5. Actively practice gratitude. Take a moment every day to write down or verbally acknowledge the good in your life. For example, did you know that a salary of $32,000 puts you in the top 1% of earners in the world?1 Regularly reminding yourself to be grateful can help curb unnecessary spending. After all, if you can embrace gratitude, you might just realize how little you really need.
Financial freedom is achievable and controlling your spending is the first step to achieving it. When you do spend, always consider whether you really need to "eat that bait" or whether it would better serve you on the end of your line to help you land that whopper.

If you have questions or if you would like to discuss financial freedom with me, you can e-mail me at mhaertzen@wtwealthmanagement.com or call (520) 204-1058.

Sincerely,

Matt Haertzen
Matt Haertzen, CFA, CFP


References

1 How to Become the 1% (It's Easier Than You Think)
Entrepreneur. June 14, 2019.



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