Financial freedom or financial independence seems like next to impossible in today’s world.
We live in a world of debt, buy today pay tomorrow is the rule of the modern world.
Now, imagine a life with no monthly payments and you can get to keep all your paycheck! Enjoy life as you please.
Sounds amazing, right?
It has been a few years now since I embarked to pursue a minimalist life. Slowly, I let go of a lot of stuff that doesn’t serve any purpose in my life. I also let go of the toxic relationships I had in the past.
Yes, that too is part of my plan to live a meaningful life. Now, the time has come to start removing further anchors that hold me back from doing what I love to do and what I can do.
I felt my life was overwhelmed with so many material things that I have accumulated over the years.
Coming from a poor family in the Philippines, it was such a liberation to finally get what I want, when I want it now that I’m working and living here in the UK.
Financial literacy on personal finance is a topic that I am naïve on. It is more than just the standard addition, subtraction, division and multiplication of your money. It’s more about that person in front of your mirror!
I have made a lot of stupid mistakes that I have just realised. Being blinded by the societal norms and crooked financial beliefs that everything I did was ok! Almost everyone is doing it, so it must be OK! It’s accepted by the society!
I made a lot of excuses! Both mental and emotional excuses to let myself off the hook. Trying to feel that I’m still in control of my life, but in reality, I wasn’t! Far from it. Sometimes the things you own end up owning you.
Our Financial Freedom Journey: Dave Ramsey’s Total Money Makeover (UK) Contents
- What is Financial Freedom?
- What does financial freedom mean to you?
- Who is Dave Ramsey?
- What is the Total Money Makeover plan?
- The Beauty of Sinking funds
- The value of Life Insurance
- What are the Total Money Makeover Baby Steps?
- Step 0: Make a Budget Plan
- Step 0.5: Get current on your monthly payments
- Step 1: £1,000 Starter Emergency Funds
- Step 2: Pay ALL THE DEBTS using the Debt Snowball method
- Step 3: Save 3 to 6 Months of expenses for TRUE EMERGENCIES
- Step 3b: Save for the House deposit
- Step 4: Invest 15% of your household income
- Step 5: Save for the children’s educational fund
- Step 6: Pay off the mortgage early
- Step 7: Build wealth and give outrageously
I have tried so many times over the past 10 years to sort out our financial life. Every time we try and see some good progress, life will always find a way to slap us back down.
I finally had a clear picture and well-guided map of the financial freedom my husband and I are hoping for.
What is Financial Freedom?
Financial freedom can come in many forms. For us, this would mean the world to us. A life well-lived without living from paycheck to paycheck.
That moment that we can give enough, spend enough, travel enough and save enough not just for us but for our legacy. For our future kids and grandkids so that life will be different from how we’ve known it. A much better one!
The road to financial freedom will be uncomfortable, but we have decided to do it anyway. Just keep our eyes focused on goals.
What does financial freedom mean to you?
We are all in different stages in our lives. My financial freedom goals might not resonate with you, as you have your eyes on something different. Something meaningful in your own world.
Whatever your financial freedom goals might be, you always have to remember to remind yourself on why you want financial freedom.
Visualize your life on how it will be to live with financial independence.
Who is Dave Ramsey?
Dave Ramsey is an American Financial Guru for over 25 years. He’s been teaching amazing financial wisdom from his personal experience’s.
He is also a best-selling New York Times author, financial coach and speaker, radio and tv personality, and great uncle that you never had!
He started a program called Financial Peace University in the US, however, they don’t have it here in the UK yet.
However, other Dave Ramsey’s UK listeners enjoy his radio show thru his mobile app or Youtube Channel.
When I found out about Dave Ramsey and his amazing mission, I was totally hooked! I managed to listen to his two audiobooks The Total Money Makeover and the Financial Peace Revisited in less than a week!
I also watch his program daily. I have almost 25 years’ worth of financial wisdom to catch up on! I personally love the segment in their show called the Debt Free Screams, Turning Point and the Everyday Millionaires.
You should also watch them, they are so inspirational! The videos will surely get you pumped up to tackle your personal finance once and for all.
What is the Total Money Makeover plan?
The Total Money Makeover is a simple and effective financial concept that has been taught by Dave Ramsey for more than 25 years.
The Total Money Makeover book has been one of the New York Times Bestseller.
It has made a phenomenal impact on millions of lives in America to control their finance’s again.
Part of the Total Money Makeover lessons on financial learning is to implement a ZERO BASED HOUSEHOLD WRITTEN BUDGET before the start of each month or before your payday.
ZERO BASED HOUSEHOLD BUDGET =
Income (minus) Savings (minus) All the expenses.
This strategy will ensure that every penny has a name and will serve its purpose.
The Zero-based written budget will also track every single transaction in each category so you won’t wonder where did your money go in each month.
There are three main things that you can do with your money: Spend, Give and Save.
Winning with money is 80% behaviour and 20% head knowledge.
These are the themes to base your budget on. Spend it for recreational and for your necessities. Give to Charity and Save to build wealth for your future legacy.
When Debt comes into the picture, (as the majority of us has debt) this will become the main priority of your budget after you have covered the main necessities like shelter, food, utilities, clothing and transport.
To take action and implement the teaching of the Total Money Makeover plan, we have implemented our zero-based written budget in our household and also using the money envelope system.
The Money Envelope system is a way of segregating your money to make sure you are not overspending in each category. Because of this, we also use cash majorly for our daily or monthly spending other than the typical direct debits.
Here is the sample of our money envelope system in our household.
Here is the back of our money envelopes.
If you are single, this is pretty easy because you will only have to control the person in the mirror to make this happen.
If you are married, this will be a bit tricky as it is absolutely necessary that both parties is on the same page for both of you to succeed in this.
The Beauty of Sinking funds
Sinking funds are simply a savings fund within your budget. This will give you the purchasing power to buy an expensive item or fund an expensive holiday and pay for it in cash!
The perfect examples of sinking funds are for gifts, car maintenance, travel funds and clothing etc. You can even set up a sinking fund to buy a new car!
The value of Life Insurance
Having life and health insurances are vital especially when you are taking the road to financial freedom.
This will help you to save your butt from getting burned by expensive hospital bills and other medical notes. There is nothing more stressful than having a medical emergency in the family.
Make sure to get a Life Term Insurance that will cover you and your family in an event of death.
A great health insurance that will cover the majority of the hospitalization and medical emergencies are also a great cover to have.
However, don’t put your money on any investment type life insurance. You will be better off save that money in a good mutual funds.
If you are looking for a UK life and health insurance for yourself and family, you can contact my friends over Brio Financials. They will guide you in selecting the best insurance that can cover your needs. They are the one who handled our insurances as well.
What are the Total Money Makeover Baby Steps?
The Total Money Makeover is made up of 7 Baby Steps carefully curated by Dave Ramsey through the years of experience in teaching people on how to win with money and personal finance to create wealth.
Step 0: Make a Budget Plan
As I mentioned earlier, create a zero household written budget.
This is not just about listing all your direct debits in order each month, but actually allocating money each week or month to different household categories like food, pet fund, baby fund, medicine, entertainment etc.
You can see our money envelope system on the image above.
In the last few months since we started the total money makeover journey, as a couple, we started to have a budget committee meeting.
As a married couple, we shared our income and treat it as one big pot of income for our whole household. His money and her money is not in the equation.
This might sound odd to some people. Marriage vows entails the union of two people into one. ONE.
So that would mean, that includes the money aspect too! For richer and for poorer, in sickness and in health. What is yours is mine and what is mine is yours!
Remember those words during your wedding?
Our monthly budget committee meeting is another way for us to communicate well within our relationship. This is to make sure that we both have the opportunity to say our opinion with regards to financial household matters.
Step 0.5: Get current on your monthly payments
This next step is only applicable when you are deeply behind on your monthly debit expenses that you regularly have to pay.
Once you created your written budget, you have to make all the possible effort to make sure that you can catch up on these delayed payments before moving to the next baby steps.
Step 1: £1,000 Starter Emergency Funds
An emergency fund is ONLY for emergencies. Build your emergency fund as quick as possible!
This might not sound a lot, but believe me, this is a life saver! This will catch all your small unexpected misfortunes e.g. broken down home stuff, new tyres for your car etc.
This is really handy for you not to rely always on your credit cards and incur more debt while trying to get out of debt in the first place.
The main goal here is to treat your emergency fund as a cushion between you and bad luck while you are trying to set a strong foundation and plan to win with money. We have managed to save our emergency fund in less than a month by selling a few things at home.
Step 2: Pay ALL THE DEBTS using the Debt Snowball method
The maths nerds will not agree, but this stuff works! Remember the main goal here is the behaviour modification.
Yes, the percentages might not work out as your typical debt snowball method, but having small gradual success and progress makes you feel that you are winning!
Hence, motivation to tackle debt once and for all are much easier than ever.
What is Dave Ramsey’s Debt Snowball?
The debt snowball requires you to list ALL your consumer debts except your mortgage from smallest to largest regardless of the interest.
Focus all your energy or as Dave says “Gazelle intense” focus on your smallest debt first. Then once that is paid off, use that previous monthly payment plus all the extra you can find to the second smallest debt monthly payment and the process goes on until it snowballed.
With the little debt paid off, you will get motivated to keep going! In no time, you will get out of debt before you even know it.
We are currently on this baby step and making very good progress.
Step 3: Save 3 to 6 Months of expenses for TRUE EMERGENCIES
This is the last step in building a strong financial foundation. Setting up a fully funded Emergency fund worth 3 to 6 months’ worth of expenses.
Make sure not to use this money for anything else other than life’s true emergencies like unforeseen misfortune, accidents, medical or health problems or job loss.
Keep this stash of cash in a separate account away from your main account to prevent yourself from spending it.
Do not use the emergency funds to invest in any business, buy an expensive lifestyle item or to top up your monthly budget. You can use Sinking funds for these planned expenses.
Step 3b: Save for the House deposit
If you are not a homeowner yet, now is the time to save up for the house deposit.
The amount will be completely up to you, depending on how much you want to set up as a deposit for your new home.
Ideally, mortgage payment should take around 25% to 35% of your household income or less.
At this time, you might not have a credit score on your name because you don’t have any debt left outstanding. Mortgage underwriting is available for those people who don’t have any credit scores.
Now, moving on to the exciting part of the baby steps: Baby steps 4, 5 and 6 are meant to be tackle simultaneously.
Step 4: Invest 15% of your household income
Now is the time to invest and start growing your wealth!
As suggested, Invest 15% of your household income to various mutual funds and tax-free savings account like ISA.
The book suggested to invest in mutual funds and divide the 15% into four mutual fund categories:
25% in Growth Mutual funds
25% in Growth and Income Mutual funds
25% in Aggressive Growth Stock
25% in International Mutual funds
You have to seek for a financial advisor to get a solid financial advice on investments.
Step 5: Save for the children’s educational fund
It is always wise to save up for the future of your kids.
This baby step tackles the funding for the educational fund for your kids for them to avoid the nasty student loan debts. So they can get a head start with their financial life.
If your child wouldn’t want to pursue his/her further education, they can use the fund for their first home.
Step 6: Pay off the mortgage early
It is now time to knock out your mortgage payment.
This is the last hurdle now to achieve the financial freedom. Still, focus giving all your gazelle intensity on knocking out this debt.
Once you have followed all the steps suggested in the book, getting this far would be easy now once you passed the baby steps 2 and 3.
The book suggested aiming to get the 15-year mortgage with fixed rate interest. However, being intentional and now that you are winning with money, most likely you can knock this off in less than 10 years.
Saving you a lot of money from all the potential mortgage interests.
Step 7: Build wealth and give outrageously
Now that you are on the last step, be outrageously generous and help other people.
This solid financial plan has made a lot of millionaires in the US. I think even the majority of the terminologies are from the US, you can surely work out the equivalent here in the UK.
The main pillars of the book are applicable to anyone around the globe that are willing to get their hands dirty and brave enough to accept the challenge.