The mention of financial planning just made some of you start sweating. It can be extremely stressful trying to create a plan and often requires quite a bit of work but is it really worth it? I hear this question asked almost daily, and to answer it, let’s look at some quick stats first.

• Only 39% of Americans have enough cash to cover a $1,000 emergency (Bankrate)
• 78% of Americans live paycheck to paycheck (CareerBuilder)
• 70% of Americans’ retirement plan is not to retire and keep working (Employee benefit Research Institute)
• 40% of Americans have saved less than $300 (GOBankingRates)
• 72% of Americans reported feeling stressed about money (APA)
• 70% of U.S. Households do not have a long-term financial plan (Gallup)

Ok, now the scary part is over. Take a deep breath. Everything is going to be ok.

As the stats above show, You are not alone if you feel stressed; you are actually in excellent company.

The good news, a sound financial plan can start solving all of those stats above. If having a financial plan can eliminate or even reduce stress in our lives, why wouldn’t we take action and start planning? To live a life that no one else is living, you need to do things no one else is doing. Planning is definitely not typical in our society; let’s get weird.

I believe that no one should live under the influence of financial stress. Stress eats away at your psyche and impacts everything you see and do. We have a way out. It’s called financial planning.

Not all financial plans are made equal. Let’s take a look at what you need to know about a financial plan that works for you today as well as in the future.

What is a financial plan?

When we hear the words “financial plan,” if we can get over the immediate stress that we feel at the thought of finances, we tend to think it is only for those with a lot of money. That couldn’t be further from the truth.

A great financial plan is not just a list of investment options for the rich but a living, breathing plan that grows and changes with you as you move through life. Think of it as a roadmap for navigating your financial journey.

A tremendous financial roadmap needs to be unique to you and reflect your goals, wants, individual situation, and specific needs that you have today while preparing you for your future. Every roadmap needs to have particular markers to compare where you are today to where you have been, note progress, and track how you are doing with your goals.

A genuinely great financial plan makes your finances personal and shows the options available to you. There is always a way forward, and this just lets you find it a little easier.

To have a complete holistic financial plan, you must have these categories in mind.

1) Financial Health — Time to get personal

The first step to any financial plan is to understand yourself, and you are not just the numbers that a spreadsheet can capture. When we diagnose our financial health, there are two categories of questions that need to be asked; personal and financial. Finances are 80% behavior and 20% knowledge, so any strategy that doesn’t first consider WHO you are is missing the mark. Your financial plan should start with a detailed understanding of these topics about you.

• Relationship to money
• Family make-up
• Interests and hobbies
• Fears and strengths
• What type of support system do you have in place

Once we have that foundation established, we can dive into your finances. We need to get a baseline of our financial situation, and the list below helps us develop that baseline.

• Income (Primary, side hustles)
• Cash Savings
• Assets (real estate, investments, business ownership)
• Debts
• Insurance
• Retirement (401k, IRA, 403b)

Once the baseline has been formed, we need to talk about your timeline. At the end of the day, financial planning is all about taking your dreams and turning them into a reality. To make your dreams a reality, we must take action.

Your goals and timeline will change as you move through your financial journey, but it is always important to have tangible goals to measure progress.

2) Financial Literacy

Knowledge is power. When we are talking about finances, that statement rings even more accurate. Part of your financial plan and the financial journey is to grow your understanding of finances.

The bottom line is most of us struggle with finances. We need to take ownership of the journey and start gaining knowledge. We do not need to be experts, but we must understand the financial concepts that affect our future.

Financial literacy includes things like managing money, credit vs. debits, retirement accounts, interest rates, debts, compounding interest, investment vehicles, and taxes. I know this can feel overwhelming, but it is well worth the time it takes to understand these things. Trust me. Your future self will thank you for the effort you put in.

This is where working with a financial planner, advisor, or wealth coach is extremely helpful for your growth. Life isn’t meant to be done alone, and finding someone you can trust to walk through your journey with you is so beneficial.

I know this journey might feel overwhelming, and check out this article here for more detailed information on Financial literacy 101.

3) Investing — You have options (pun intended)

Much like who you are, there is no cookie-cutter investment or portfolio that works for everyone in every situation. There are so many investment vehicles for you to participate in, but your investments should always reflect the overall goals laid in your financial plan. Where there is no vision, there is no future.

There are a few criteria that you should evaluate before investing any of your hard-earned money.

• Does the Risk vs. Reward make sense with my goals?
• What is the exit strategy?
• Do I understand the investment strategy and who executes it?
• Are there any fees associated with the investment?
• What is the timeline for the investment?
• What are the capital requirements? (How much money does it take to invest)

A financial planner or advisor can run your money through simulations to ensure that your investments are “on track.” They call this process stress-testing, and it is a great way to ensure your investment strategy makes sense.

Nothing is certain when it comes to investing, but here are a few general thoughts to keep in mind:

• Every investment has a unique language associated with it, don’t let that scare you off from learning more. Once you understand the language, the investment becomes more enjoyable, and you will no doubt be more successful.
• If it seems too good to be true, it probably is.
• Investing generates money, and gambling loses it. Get rich quick schemes are precisely that; schemes.
• “Compounding Interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t pays it.” Make compounding interest work for you, not against you.
• Risk vs. Reward, the more risk an investment has, the more potential reward. The goal should be to minimize risk while maximizing reward.

Take advantage of the experience of others and never stop educating yourself. Investing in you is the best investment you will ever make!.

4) Insurance

One thing is 100% certainty regarding your financial future. Life happens. Insurance protects you from the unexpected, so it does not throw you off your course when life throws a curveball your way.

There are several coverages available to you, such as life, disability, and long-term care, that all help protect your financial future and ensure your family is protected.

Unfortunately, it is extremely easy to overpay on insurance. Thankfully there are tools like Policy Genius that can help cut through the mess of selecting an insurance provider by allowing you to shop rates to ensure you get a good deal. My wife and I utilize policy genius, and we love it! It has saved us hundreds of dollars every month.

5) Taxes

There are few things worse than getting a letter from the IRS asking for more money. Not a place that is fun to be, for sure. Taxes take a significant portion of our earned income anyway we slice it, so shouldn’t we attempt to reduce the burden of taxes each year? I think so, but so often, it is overlooked.

When we think of taxes, we often view them as an unavoidable burden and are frustrated with the amount we pay out to Uncle Sam unless we are lucky enough to generate a refund. (Which isn’t really ideal either – we will talk about this later in another post.)

A financial plan should consider your tax burden so you can maximize how much of your money you get to keep today and in the future. There are many tax-advantaged strategies to minimize your tax burden, such as charitable donations to offset taxable income and maximize contributions to your IRA accounts.

Let’s take a retirement account, for example. Should you choose a traditional or Roth IRA? They both have excellent benefits for you and are great retirement options, but one primary way they defer is how they affect your taxes.

With a Roth IRA, whatever you deposit today is taxed today, but the money inside of the IRA goes tax-free as long as you are withdrawing after age 59½.

With a Traditional IRA, you receive a tax write-off today for whatever you invest, and then as your IRA grows, the money is taxed as you take it out.

So the decision is, do you want a tax break now with a Traditional IRA or a tax break later with a Roth IRA? You can also do conversions between the two to lower your taxable income drastically.

Ultimately your taxes should not dictate your financial plan, but they very much should be weighed and considered when choosing investments, retirement accounts and how they affect your overall goals.

Remember, tax evasion is illegal; tax is avoidance is smart.

6) Progress Monitoring

Your financial plan needs to have regular check-up periods for you to adjust as life changes or goals shift. Your financial plan is a living, breathing document with the sole purpose of maximizing your probability of achieving your goals.

By looking at this document regularly and having accountability built into your plan, you are will be able to assess what is working, what needs to be adjusted, and what steps need to be taken.

I know this is a lot but remember, no step is more important than the next one! You got this!

Disclosure:

This material has been prepared for informational purposes only and should not be used as investment, tax, legal, or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

The post What Is A Financial Plan And Do I Really Need One? appeared first on Affording Freedom.

Why are we constantly pursuing money? Do we want money for money’s sake? Does money guarantee happiness, and is the pursuit of money a goal worth pursuing? We put a lot of pressure on our ability to make money. Sure we need to make money to live and provide for our families; I’m not saying that’s not important. But somehow, along the way, we lose sight of ourselves. Money becomes more important than our values or, maybe more accurately, becomes our only value. Money at its core is only a tool, and a tool is only as effective as the person who’s holding it. Our behaviors dictate our actions, our thoughts dictate our identity, and our identity influences our perceptions of ourselves and the world around us.

Simply put, we can make all the money in the world, but if we don’t work on ourselves and have the proper perspective, it won’t mean anything. When you work on yourself, everything else comes into place. Investing in yourself is the best investment you’ll ever make. Having all the money in the world won’t provide happiness or freedom unless we can see money for what it is, a tool at our disposal. It is not the solution; we are the solution. It is time for you to change your perspective.

Key principles for changing your perspective

1) Let go of the illusion of control

We all constantly thirst for control, which can be highly useful in life; taking responsibility for our actions and being accountable is a great thing, but not accepting the reality of how much we can control leads to disaster. What we believe we can control directly impacts our identity. If we can control outcomes and the outcomes are “bad,” we have failed. In order to change our perspective, we need to understand what we can really control, which spoiler alert isn’t very much.

When we sit back and think about it, what do we actually control in our lives? Can we control how others perceive us or our actions? What about the weather, the stock market, whether we get the promotion, and our relationships? The reality is most of life’s outcomes are out of our control. So the question is, what do we control?

We only have direct control of how we choose to respond to a given situation and our conscious thoughts towards people or situations. Financial and personal peace begins with releasing what you don’t have control over and mastering what you do.

Let’s get practical. Let’s say you are going for a promotion at work. Are you in control of getting the promotion? Sure, you have influence over the promotion by how hard you work and your job performance, but ultimately you do not decide whether or not you get the promotion. So focusing on the promotion is wasting time on what you should be focusing on, bettering yourself. Anytime something we want is outside of our control, our answer should be to look inward, and finances are no exception. To get what we want, we must focus on what we can control.

2) Replacing Trying with Training

I think I use and hear the word try in some form at least 100 times a day. “I tried my best.” “I’ll try and do better.” “I am trying to stick to this diet, but it’s just so hard.”

According to the Merriam-webster dictionary, try is defined as “to make an effort to do something: to attempt to accomplish or complete something.” We need to completely get rid of the mindset of trying. Trying implies an action that is not in line with your identity. When we say try, we leave it up to willpower which will inevitably run out. Trying also is glued to a specific pass or fail outcome. (add more)

We don’t want to try on anything of importance.

Instead, we want to train. Training is defined as “to teach so as to make fit, qualified, or proficient: to make prepared.” Training is connected to your identity. If you try to run a marathon, the odds are you will fail. If you train for a marathon, you will succeed. Our mindset is critical, and we need to be people who train.

The same is true in finances. If you try to get out of debt and become financially free, the road will be difficult. If you train yourself to be a financially free person, you will inevitably become financially free. To learn more about what makes people financially truly free, check out this article on the seven characteristics that all financially independent people share.

3) Embrace and Accept rather than avoid Avoid and Deny

Self-awareness is critical to changing our perspective. If we don’t understand our typical patterns when handling difficult or stressful situations, we don’t give ourselves a chance to overcome them in the future. We like to think of ourselves as self-aware people, but our actions and thoughts often don’t support this narrative.

It is natural to avoid and deny problems, but unfortunately, problems thrive in the dark. When we face a difficult or stressful situation, we will typically avoid or deny it, and sometimes if we are really on top of our A-game, we do both. It feels more comfortable not facing the unknown head-on and challenging ourselves to endure. This is especially true in our financial lives. We are on the edge of bankruptcy, but we refuse to make any changes. We don’t want to take a look at our spending habits because it is too scary to face the mountain of debt.

The first step in dealing with any problem is accepting that the problem is there in the first place. The second thing we must do to change our perspective is to realize that the obstacle in front of us is the way forward. I love how Marcus Aurelius puts it, “The impediment to action advances action. What stands in the way becomes the way.”

Every obstacle provides us a unique opportunity to grow and improve ourselves and the world around us, or it can be another stumbling block that we can’t overcome. The major shift occurs when you realize that you get to choose which way you want to look at it, and that choice will dramatically affect every area of your life.

The post The Art of Savings — It’s All About Perspective appeared first on Affording Freedom.

We all like to feel like we have control over ourselves and our actions. The alternative is just too frightening to imagine, but have you ever wondered how much of what we do is just a result of habit? I think we can all remember times when we drove back from work, got home, and had no idea how the heck we just got there. It’s not like we were asleep at the wheel, but our brains definitely were not active. But how often does that really occur? Research shows that up to 95% of our behaviors are a direct result of our habit cycles, with conservative estimates showing that habits control 50% of behavior. At best, we are on auto-pilot for half of our lives.

I think Mahatma Gandhi said it best when talking about the power of habits:

“Your beliefs become your thoughts,
Your thoughts become your words,
Your words become your actions,
Your actions become your habits,
Your habits become your values,
Your values become your destiny.”

For many of us, when we think of our financial journey, it is nothing but a series of poor decisions and stress. The more we make poor financial decisions, spend more than we make, buying things we don’t need, the more it becomes a habit. The stronger the habit, the harder it is to break, no matter if that habit is good or bad. Habits are neutral; they don’t play any favorites.

I love how Warren Buffett puts it. “Chains of habit are too light to be felt until they are too heavy to be broken.” So the obvious question that arises is how do habits work, and can we control them?

Habit Cycle —

The Merriam-webster dictionary defines a habit as “an acquired mode of behavior that has become nearly or completely involuntary.” Simply put, habits are our brains’ way of shortcutting information to be productive in life. Our brains take on an insane amount of data every second, and in order to decipher that information efficiently, it needs shortcuts.

The good news about habits is that they are predictable and follow a set pattern. James Clear, the author of Atomic Habits, does an excellent job detailing the habit life cycle in 4 steps.

Step 1) Cue

The cue is the trigger that tells our brain to look for a shortcut and initiate a behavior. Your brain is constantly searching for cues that will produce the rewards we value, such as money, power, fame, status, approval, love, friendship, and our more primary rewards like food and sex.

Since our behaviors are incredibly responsive to our environment, it is essential to control the cues that we surround ourselves with. We want cues that are obvious so our brain can’t miss them. For example, if you want to read more at night, a cue can be putting your book on the pillow in the morning.

Step 2) Craving

After every cue, a craving will follow. They create a sense of desire and act as a motivational force for our habits. Without these cravings, which produce desire, we have no reason to do anything or even get out of bed in the morning. The critical thing about cravings is that you are not craving the habit but what the habit gives you.

For example, you don’t want to watch tv; you want to be entertained. The craving you have is for the reward, and the way to get the reward is the habit.

Cravings are also unique to us. Sure, we can all share similar cravings for things, but we are all motivated by different things, and we all have our unique perspective that shapes the way we look at the world. The cues in our lives are meaningless until they have thoughts, feelings, and emotions from us behind them that turn the cue into a craving. For an overweight person, the sight and smell of a fresh-baked donut can trigger an intense need for the donut. For somewhere who is a bodybuilder, the donut might not be of interest and can simply walk right by it.

Step 3) Response

After our craving, we must respond, and thus our habit is born. Our response is limited by two key factors; motivation and ability. These are reasonably obvious limitations of habits, but they are essential to note.

If the habit requires more effort than the motivation you have, you will not do it. Simple enough. Similarly, if you are incapable of acting out the habit, you will not do it. No matter how much you want to go outside and run a marathon in 3 hours, you are out of luck if you don’t have the speed and physical stamina to do this.

Step 4) Reward

Finally, after we respond, we are rewarded. Our brain is a reward detector. Our brain is looking for things that increase pleasure and decrease pain. Every reward serves to satisfy a need and teaches our brain what to remember in the future. If a reward is favorable, it is remembered; if it is not, it is forgotten.

How to Control Your Habits

Now that we understand how habits are formed, we can now seek to control them. Every step of the habit chain must be strong, or the habit will break down and be forgotten. If there is no cue, your habit will not start. Reduce the craving, and you will not have the desire to respond. If the craving is there, but the response is too difficult, you won’t be able to do it. Without a satisfying reward, you will not do it again.

When the habit cycle is strong, the behavior will be repeated. In order to control our habits, we need to work smarter, not harder. We can break down each of the habit stages and find a way to produce good habits and eliminate bad ones.

Creating Good Habits:

In order to create a good habit, we want to maximize every step of the habit cycle so it gives us the greatest chance of repeating the desired habit.

We need our habits to be:

1. Obvious (Cue)
2. Attractive (Craving)
3. Easy (Response)
4. Satisfying (Reward)

Breaking Bad Habits:

Conversely, if we want to break a bad habit, we need our habits to be:

1. Invisible (Cue)
2. Unattractive (Craving)
3. Challenging (Response)
4. Unsatisfying (Reward)

Following the above steps gives us the greatest chance of continuing the undesired habit.

Habits are extremely powerful forces, and now that you understand them, you can master them. Here are a few helpful tips to take with you on your journey to self-mastery.

1. Habits control at least 50% of what we do
2. Habits follow a set patter of cue, craving, response, reward
3. Focus on identity and giving yourself easy wins.
4. Remember your habits rules
5. Outcomes are not 100% in our control but who we are is always in our control.
6. Stick with it! Habits will either control you or you can control them. You choose!
7. As always, you got this!

The post Habit Hacking — The Easiest Way To Gain Financial Freedom appeared first on Affording Freedom.

At some point in all of our lives, we all have been guilty of the victim mentality. It could be that something happened where you were indeed a victim of a crime or complicated situation. Maybe you put your money with a business partner who took off and ran, or you attempted to help a family friend, and they used and abused your kindness. I know for some of you, the wounds cut much deeper. Regardless of the reasons, we all have been victims to something or someone at some point in time, and if you haven’t yet, odds are you will experience it later on in life. Unfortunately, we can not choose what happens to us, but we are in complete control of how we choose to respond to whatever life throws our way.

As painful as it is to be the victim of a situation, and I know how painful it can be, letting the situation change our identity can be worse than the situation itself. The real danger is that when we embrace the victim mentality, we open the doors for it to change our identity. Our identity is critical to protect and build up because it affects everything from our thoughts, perceptions, feelings, and actions. When we allow the problem to frame our identity rather than using our identity to frame our problem, we are in serious trouble.

Focusing on the root of the problem allows us to heal and grow rather than bandage and avoid. What I want to do in this article is explore the victim mentality, why it is dangerous, and how we can stop the cycle of the victim mentality.

What is a Victim Mentality?

Before we dive into the victim mentality, I think it is essential to understand what we say whenever we say, victim. As defined by the Merriam-Webster dictionary, a victim is “one that is acted on and usually adversely affected by a force or agent.” This definition reveals a few truths you must accept if you call yourself a victim in any situation.

Victim Beliefs:

• Other people or circumstances are to blame
• You have no responsbility for the given situation

A victim’s mentality feels, acts, perceives, and views every situation through the lens of a victim. In short, their identity becomes that of a victim.

Why is it dangerous?

Unfortunately, bad things happen all the time in which other people or circumstances are to blame, and you really don’t have responsibility for the situation. When you indeed are a victim of a situation or person, it feels like a sucker punch. All the air is knocked out of you, and you struggle to get your footing back.

There is nothing wrong with acknowledging that you have been a victim. The problem is when you start to see every situation from the lens of a victim in which other people or circumstances are to blame, and you have no responsibility for the given situation.

Even if you can truly call yourself a victim of a situation, having an identity of a victim only will hurt you, even if it is bandaging some more significant wound. It can be difficult to accurately assess if you have a victim mentality because let’s face it, we typically aren’t very skilled at looking at ourselves honestly. Below are a few side effects associated with a victim’s mentality.

Side-Affects of Victim Mentality:

• You consitently blame others for the way your life is today
• The belief that life is funadmentally against you
• You feel powerless against problems that come your way and have trouble facing them
• It is difficult for you to look at yourself honestly and make changes
• You often feel attacked by anytype of critism
• You often think “What’s the point”?

Living with a victim mentality ultimately leaves us isolated and angry. It makes us feel powerless to address life head-on, and it is also challenging to have lasting relationships with people with a victim mindset.

How to stop being a victim?

First things first, you are not broken. The victim mentality is a learned behavior and a coping mechanism. When we are faced with trauma and don’t have a healthy example of how to deal with it, adopting the victim mentality is an entirely natural thing to do; just don’t stop there. Just because it is natural doesn’t mean it is the best thing for us. There is so much more for us out there and being a victim holds us back.

Below are a few practical ideas and practices to start taking into your everyday life to stop living out of the victim mindset.

Practice Self Care

Your self-worth gets dragged through the mud when you live as a victim. When you are struggling, it is important that you are patient with yourself and prioritize yourself even if you don’t feel like it.

There are many ways to give yourself the self-care you desperately need; just make sure to start and prioritize it. Below are a few great habits of self-care that you can start today.

• Exercise – Dopamines are fantastic for your mental health. Plus just sweating can feel carthatic and gives you a win for the day.
• Journaling – This is for me as been the biggest help for my mental health and it is so easy to start. Don’t judge yourself for what you are writing, just word vomit all of the page. For me, when I am struggling with something, writing it gets it out of my body in a sense so I can actually have peace with whatever is going on and move on with my day.
• Meditation – It is incredible how much this can help your day to day life. Centering yourself on the present moment makes the mundane beautiful. There are lots of good resources on mediation and you can always check out our articles on meditation.
• Sleep – This is the one that I really struggle with personally but if you aren’t getting enough sleep, you are really sabtoaging your mental health.

Take Responsibility

At the end of the day, you are the only person in control of your life and actions. You can not choose what life throws at you, but you always get to choose how you respond. You get to control who you spend time with, what you do each day, and what you bring into each situation. The quality of your life is directly correlated with the level of responsibility you have over it. When you make a mistake, own it; when you fail, face it.

Embrace The Journey

There are no quick fixes in life. Things tend to take time and effort consistently in order to see results. The problem is when we are to results orientated and not in love with the process. The journey of life is not a straight line. There are ups and downs, highs and lows, and we need to be grounded in something, ideally our identity.

Our identity is not something we can check off a list, and then we are that person forever. For example, if your identity is you are a healthy person, you don’t work out one time and then don’t work out for a year because you have achieved being healthy. It just doesn’t make sense. Being a healthy person means you work out consistently day after day. Our identity must be grounded in principles and habits that are journey-minded because when you know who you are, you know what to do.

There is always a way forward, sometimes you just need some help seeing it. You got this!

The post The Traps You Don’t See Still Hurt — Unpacking Victim Mentality appeared first on Affording Freedom.