In September/October issue of MoneySense Magazine I read a pretty neat article called 11 Steps To Financial Freedom. Upon reading the article I thought it would be good to share my own results, but instead of going through 11 steps I condensed it down to what I call – 7 Tactics to Financial Liberty. You probably already realized that the article had 11 steps and I only have 7, but there are reasons for that which you will discover throughout the posts — in short these seven steps best suit me for my current life situation. I will post 1 to 2 tactics per week with the intention of not dragging it out for a long time and keeping it simple as possible.
Tactic # 3: Spending Adjustment
Second tactic focused on tracking and reviewing our spending. The third tactic ties into the previous one, where we will focus on adjusting our spending. Much like the previous two steps, it is not about pointing fingers and playing the blame game. Instead, it’s about being honest with your self. Leaving the past mistakes in the past, while laying the groundwork for a brighter future.
We all have different priorities and things we find enjoyable in life. Someone who enjoys cars will spend more monthly on a car payment, versus someone who just needs a car to get from point A to B. Someone else may allocate a larger chunk of their budget to eating dinners. I enjoy spending my money on clothing, not only because I enjoy looking presentable, but rather it comes with the life I lead at work and outside of work.
Find what is important to you & be honest with your self.
When I set out to buy a home four years ago, I used my goal as motivation towards purchasing my first home in 2009. When all friends were going out every weekend, it was me who was staying home and keeping it low key by not spending unnecessary money.
I identified my home purchase as important on my future goals, hence why I started making sacrifices two years earlier to save for a down-payment. I went against the grain to save for my first down-payment via forced savings. I took out a $7,000 RRSP loan (nice tax return in 2008) and paid it back within 14 months. I cut my going out from three times a week to once a week (if that, sometimes). I stopped eating out, buying coffee on the go and restrained my self from purchasing new clothing. I went cold turkey on shopping, because I had to in order to achieve my goal of purchasing my first home.
Ever since I decided to take the road to financial liberty in 2010, I’ve been tracking my spending heavily. I do this mostly through my home-made budget and In order to keep things simple I automated my RRSP, TFSA and general savings accounts. After all my fixed and variable bills are paid at the end of the month I have roughly $900 leftover for savings, retirement and personal life (which I dedicate $400/month or $200 every bi-weekly pay period).
Being a single income household I am fortunate to have $900 surplus leftover after all the bills are paid for to contribute towards my future. However priorities sometimes takeover future plans. I’ve identified few priorities for 2012 that rank pretty high on my to do list and need to be looked after:
1. Student Loan
I wasn’t in a hurry to pay off my student loan since the interest rate is pretty low. And the student loan is one of my guaranteed tax deductions. However, ever since I eliminated my CC debt, student loan debt has been on my mind. I have roughly $2,200 left owing to OSAP. Not a significant amount I think. And by eliminating my student loan upfront, it will give me just over $100/month in extra cash flow per month.
2. Line of Credit
Currently I owe $5,000 on the LOC at 4.95% interest rate. The loan is secured against my home, so I’m only obligated to pay $30/month in interest. This is my next debt elimination project. I figure for the first part of 2012, it will be a slow process into paying the LOC back, simply because I want to get rid of my student loan debt at the same time.
3. New (slightly used) Car
My 2002 Olds is not getting any younger. It will be 10 years old next year, with roughly 230,000 KMs on it presently. It’s been good to me with no major costs for repairs, aside from regular annual maintenance. I’m sure I can get another year or two out of the car, by then the car will have close to 300,000 KMs on it. Sooner than later I will need a new vehicle. I have a few in my mind, but I will keep you in the dark until the time comes.
Priorities do come first and the two priorities that rank high on my list are eliminating LOC and student loan debt. The car can wait and I am patient enough to wait for the right time. I’d rather eliminate the debt first, before taking on more debt. The other side of the coin is that my savings will be reduced due to more cash flow going towards greater priorities.