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Aug. 19, 2022

How to Manage Your Money and Create Financial Freedom

How to Manage Your Money and Create Financial Freedom

Introduction

Do you know how to manage your money?  You can’t afford to ignore your finances. It might seem like a boring topic, but if financial freedom is your goal then learning to successfully manage your money is essential to your long-term success. 

Do you feel like you’re struggling to make ends meet as a solo mother? Have you been told that the best way to get financial freedom is to win the lottery?  You work hard but no matter how hard you try, you just can’t seem to have enough money or stay out of debt. 

If that sounds familiar there’s good news.

You can take simple steps to start managing your money so you can achieve financial freedom. In this guide, we’ll show you how to avoid debt, create an emergency fund, spend less than you earn (and save more), invest wisely, automate bill payments, and take advantage of your company’s retirement programs so that you can achieve true financial freedom—and get ahead of the curve before it’s too late! 

The sooner you start, the better—and it doesn’t take much effort to get started. In fact, if you can make a few small changes each week and follow through on them consistently over time, you’ll start to see positive changes in your finances.

Disclaimer: This post contains affiliate links which means I may make a small commission should you make a purchase via one of these links. Thanks.

 

What is financial freedom?

According to Merriam-Webster, financial freedom is “the state of being free from financial burdens, obligations or worries.” 

Financial freedom is different for everyone. It can mean different things to different people. For some, it means not having to worry about money and being able to spend their time doing what they love—whether that’s traveling the world or just relaxing at home with family.

Generally, financial freedom means being able to do what you want without worrying about money. It’s being able to afford the things you want, like a nice home, a great car, and vacations. It can also mean being able to travel, spend time with friends and family, pursue your passions and live life on your own terms.  It’s a feeling of freedom and peace of mind that comes from having the ability to make choices about when and how you live and work.

How do you achieve financial freedom? 

It won’t happen by accident or wishful thinking.  Becoming financially free will take hard work and commitment to your goals. At first,  it may not mean having all of your bills covered, but it does mean having enough money coming in that you can pay off debts and create a safety net for emergencies. 

In this post, you’ll learn about strategies you can implement that will help you on your journey to financial freedom.  You’ll learn steps to avoid debt, create an emergency fund, what it means to spend less than you earn (and save more) as well as invest wisely.  We’ll also show you how to automate your finances and set yourself up for financial freedom.

But how can you set yourself up for financial freedom?  “I don’t have any money”, you say. This is a common misconception. You don’t need to be rich or earn a large income to set yourself up for financial freedom. All you need is the right mindset and some simple tools that will help you get a handle on your finances.

Tony Robbins often refers to Theodore Johnson, the UPS driver who never earned more than $14,000 per year.  Yet when he died he had a net worth of $70m. How did he do it? He used the power of compound interest and saved a large portion of his income.  He invested wisely and let time work in his favor.

Change your mindset about money

dollar, money, running away

First, let’s begin by forgetting everything you learned about money management.  The traditional method of saving money is to go to the bank, open an account, deposit some cash into it, and hope it’s enough to cover all your expenses. This method may work for some people but it’s not effective in the long run. The problem with this is that “set it and forget it” only works in a specific aspect of your personal finance.  You have to actively manage your money or your money will manage you.

The first step to getting rich is to change the way you think about money. The problem with most people is that they have a scarcity mindset when it comes to money. Or they don’t believe they deserve to have money so they quickly find something to buy the moment money comes into their hands.

"As he thinketh so is he..." Proverbs 23:7

But the worst belief we can have about money is to think that we don’t deserve to be rich. Or thinking that given your current circumstances you could never have financial freedom.  I remember thinking these thoughts.  When I was left to care for my two youngest sons, money was scarce.  And for a long time, I believed the lies I heard.  My ex-husband told me I would never have any money and that I’d always be poor.  

But those words are just lies told by someone who wanted to get into my head.  Don’t let that happen to you. You are not a victim of your circumstances.  You have the ability to change your life.  And it starts with changing your beliefs.

Educate yourself about money

The second step to creating your financial freedom is to educate yourself about money. This means not only unlearning what you already thought you knew. But also learning how money works, how to save and invest it, and how to create long-term financial security. 

There are many resources available to help you learn about money, including books, online courses, and financial advisers. The key is to find information that is unbiased and trustworthy so that you can make the best decisions for your own financial situation. In addition to learning about money, it is also important to develop healthy money habits. This means creating a budget and sticking to it, tracking your spending, and saving regularly. These habits will help you make the most of your money and avoid financial problems in the future. 

If you are a new solo mom Empower Yourself Financially When You're Suddenly Single might help you sort through managing your finances while dealing with new realities.

Finally, remember that it is never too late to start improving your finances. No matter how much money you have, or how much debt you are in, you can always make changes to improve your financial situation. Even small steps can make a big difference, so don’t be discouraged. Start taking action today.

Spend less than you earn

bills, money, currency

Florian Fritz’s rule #1 is to spend less than you earn.  But how easy is that when there’s more month than money?  It’s not easy at all but it’s possible.  

If you’re spending more than you earn, the solution is simple:  Cut back on your expenses.  This doesn’t mean living like a monk or depriving yourself of things that make life enjoyable; it just means getting serious about how much money is going out of your wallet each month and making sure it doesn’t exceed what’s coming in.

One way to cut down on expenses is to track them. You won’t know what you are spending money on and how much if you do not track them.  Use a free Google Sheets spreadsheet or financial app.  It doesn’t matter what you use.  Just use something.

Once you start tracking your spending you will be well aware of what needs to be cut out of your budget.  Items like subscriptions you’ve not used.  Maybe you have both Hulu and Netflix.  Choose one and eliminate it for now.  This doesn’t have to be a forever thing.  Once you establish a manageable budget where you spend less than you earn you can look for ways to treat yourself to items you had to do without while you got your financial house in order.

If money is really tight and your only luxury is a full meal, maybe you could earn some extra cash.  Do you have something around your home you could sell?  A spare bedroom or garage you could rent? or maybe it’s time to start that side hustle you’ve always dreamed of?

However, you can see if you can find ways to make extra income. But remember to use that extra income to bolster your finances — not spend more.

How can you set yourself up for financial freedom?

If you’re feeling overwhelmed because you can’t see your way out of debt let alone find money to save use this checklist to create a starting point for your situation.  If you’re worried about achieving financial freedom, then these action steps can help you gather your thoughts and take the steps necessary to get you to financial freedom.

 1. Track your spending 

2. Create a budget

3. Create an emergency fund

4. Avoid and eliminate consumer debt

5. Contribute to your company’s 401(k) plan especially if they match your contributions

6. Develop an investment mindset 

Track your spending

By tracking what you spend each month you can see where your money is going.  At least do this for one month. You may be surprised to see where the money goes. If you’re not sure how to do this use a spreadsheet or an app like mint.com.

Keep track of all living expenses and debt payments such as student loan debt. This will give you a good idea of where your money is going and help you create a budget.

Once you have the full picture of what you’re spending money on you’ll be able to move to #2

Create a budget

income tax, calculator, accounting

A monthly budget will help you decide how much money you can set aside for savings and paying off debt each month. It is the best way to track your monthly expenses, keep up with financial goals, and develop your path to financial freedom.

This can be one of the most daunting tasks especially if you’ve never created a budget before or the word “budget” creates a negative connotation for you. But we now have a changed mindset towards money, right?

Many tools exist to help you create a budget so you can better manage your money.  But a good place to start is with pen and paper.  You can also start with resources like Google Sheets which has templates you can use for free.  

Write down all your expenses including recurring monthly bills like rent or mortgage payments, utilities, car payments, and credit card debt.  Don’t forget incidentals such as your morning coffee (if purchased) or regular lunch with your best friend.  

Then make sure you have enough money coming in to cover these expenses before moving on to step #3

Create an emergency fund

How much money should you have in an emergency fund?

According to a survey, the average amount of savings people who save have is $4,500. 

Yet 36% of Americans can’t come up with $400 to cover an emergency.  This is far from enough to cover any normal everyday emergency. You can’t get by on just average savings, though—you need a true emergency fund that can cover at least three months’ worth of expenses.

But according to Dave Ramsey, if you do not have a lot of income but a lot of debt you can start with $500 in an emergency. However, he does recommend that you typically should have $1000 as an emergency fund.

Start with what’s financially comfortable for you. Keep the money in an easily accessible savings account. This is not the time to worry about the interest rate you will earn. This money is not for investment. It’s for a real emergency and you want access to it when an emergency arises.

Having a small emergency fund gives you peace of mind knowing that there’s money set aside for things like:

  • Medical bills after an accident or illness

  • Car repairs when yours breaks down unexpectedly

  • Unexpected expenses for your home such as the breakdown of the water heater or air conditioner

 

Eliminate and avoid consumer debt

consumer, trapped, consumption

Having consumer debt is not a good thing. If you avoid new consumer debt and spend less than you earn, then you can avoid most of the pitfalls that come with it. You also avoid the interest that can build up on your credit card or other loans. If you want to eliminate debt, then start by paying off any credit cards that are charging a high rate of interest. Then, focus on paying down any other debt you might have with lower interest rates.

“The rich rule over the poor and the borrower is slave to the lender”. Proverbs 22:7

This is one method of paying off interest-bearing debt.  One other way taught by Dave Ramsey is to use the debt snowball method by paying off smaller debts first.  The psychology of this method is that paying off smaller debts gives the debtor a win they can use to propel them forward.

Avoiding debt also requires an emergency fund. This will help protect you against unexpected costs, such as having to pay for a major car repair or being forced to take time off work due to illness.

Whichever method you choose, consistency is the key.  Just brace yourself for when things get difficult.  Because they will.  This is why you need an emergency fund. 

Becoming debt free is the key to becoming financially independent.

Automate bill payments

This one is easy to implement; just set up your monthly bills to be paid automatically. This way, you won’t forget to pay them and risk late fees or even worse: paying more than you need to! The best part? You could also save money on interest by not having a credit card balance lingering at the end of each month.

Be careful to leave enough money in your account to cover these automated payments.  The last thing you want is to be hit with an insufficient funds charge because you forgot or you didn’t have enough in your account to cover the bill.  That is why tracking your expenses is so crucial if your goal is to manage your money and create your own financial freedom.

Participate in your company’s 401(k) 

piggy, bank, money

Varying opinions exist on whether or not individuals should contribute to their company’s 401(lk) or other retirement plans.  From experience, I know that contribution to your 401(k) plan is especially a good thing especially when you’re struggling financially.  

For one the money is taken from your pay directly before payroll taxes.  This means that you’re not paying taxes on the money before it’s deposited in your 401(k) account.  Second, your employer may match any contributions you make to the plan, so by contributing you are essentially getting free money from them.  Third, because it's deducted from your paycheck automatically, you won't have immediate access to it.

If you’re already contributing to a retirement plan, consider increasing those contributions by 1%.  It might not sound like much but a little is better than none and you can increase the percentage as you get raises or bonuses.  You will be pleasantly surprised at how fast your account can grow.

If your company does not offer a 401(k) or other retirement plans that you can participate in. Or if you are self-employed there are other investment options such as a traditional or Roth IRA.  If you have the ability to do so, I highly recommend investing in a Roth IRA.  It is an investment vehicle that can help you save for retirement and provide tax savings on all distributions from the account.

Several retirement investment options also exist for the self-employed individual as well. 

Develop an investment mindset

money, profit, finance

You can barely make ends meet.  How can you find the money to invest? The answer is simple. You have to be willing to make sacrifices.  It’s common for moms raising children alone to think that they can’t afford anything extra. But this is a mindset that will hold you back from being successful in life.

Many people look to their tax return as a big payday to buy a new television set or take a vacation. While there’s nothing wrong with either plan if financial freedom is your goal consider using this money to either chunk down debt and/or build up your investment accounts. 

Reduce or eliminate your tax refund by paying less taxes through your payroll deduction.  You can do that by updating your W9 form with your payroll department.  While that money sits with the IRS you are losing interest on your retirement account or other investments you could have made.  

Set up an investment account

money, coin, cashAccording to Money Management Expert,Florian Fritz you can invest small amounts in various investment products. You can start by setting up a Roth IRA or a 401k if you are a self-employed individual or have access to one through your employer.  These accounts allow you to save money tax-free and they can grow over time without being taxed until they are withdrawn. 

You can also save money into a regular investment account, which is not tax-free. However, the money you earn on these investments will be taxed as income. You should consult with an accountant or financial advisor to determine which type of account best suits your needs and goals.

Finally, as part of educating yourself about money spend some time learning about the stock market. You don’t have to become an expert and this is not about learning how to time the market. It’s about giving yourself the option of at least becoming familiar with the terms of the industry that may apply to your lifestyle.

This is not investment advice! I encourage you to do your own research and talk with a financial advisor before making any decisions.  The above is just my opinion and what has worked for me (so far).  I hope this information helps!

Invest your money wisely

coins, banknotes, money

Investing your money wisely is the key to financial freedom. You need to invest in assets that you understand and can afford to lose, but also ones that have a history of success, are not correlated with other assets and can be held for a long time.

Here are some guidelines:

  • Invest in things that you understand – Understand what you’re investing in and how it works. If you don’t know the product or service then don’t invest in it! It’s as simple as that!

  • Invest in things with a long history of success – Find out when the company was founded and go back further if possible! It’s best if they’re over 50 years old, but even 30 years old is good enough! Make sure they’ve been around for at least 10-20 years though because they’ll have time on their side which brings me onto number 3…

  • As per above, educate yourself on how to manage your money.  Several podcasts and lots of books exist to help you gain even a basic understanding of money management.  

    • Try The Total Money Makeover by Dave Ramsey and Money Master the Game by Tony Robbins. If you find you have a thirst for knowledge about money check out Rich Dad Poor Dad and other books in the series.  

    • Don't get too hung up any one book or auther. The main idea is to gain a solid understanding of money in general and your own personal finance specifically.
  • Even if you hire a financial adviser it’s still a good idea have a basic understanding of your finances.  Let’s not forget people like Bernie Madoff.

Madoff was a financial advisor who went to prison for running a Ponzi scheme that took $65 billion from investors. He was able to do this because he had an understanding of how people trusted him, and it made them feel safe giving him their money.

If you want to be successful at anything in life you need to understand the basics of what you’re doing.

What to do if money is scarce

If money is still scarce think of other ways you can either make more or save more. Here are two examples:

Tips to earn more money

Do you have stuff around your home that you can sell?  Or an empty room you can rent? Even a garage or a storage shed.  Sites like Kijiji in Canada and lots of apps in the US accommodate selling old stuff or renting out your spare space.

Think of ways that the things around you that you no longer use can bring some money in to help you on your road to financial freedom.

If you have the time, one of the best ways to make extra income is by starting a side hustle. But what makes a good side hustle? You need to figure out what you’re passionate about, what your skills are and how much time you can commit. If you like cooking, consider starting an catering business or selling meals on-demand through a website like Square Meal. If designing websites sounds fun, check out LoveToDesign or TaskRabbit for gig ideas. Or maybe you love teaching yoga? Offer classes in the evenings or on weekends at a local studio that has room for new teachers.

Whatever your passion is, there are ways to earn more income from it. Check out the blog post Turning Your Knowledge into a Side Hustle for ideas and ways you can start to make some bag with what you know.

Tips to save money

these money saving tips are to help you spend less on certain like groceries and clothes.

Free groceries or clothes

Some churchses and community organizations regularly give food and other household items to their members.  Sometimes you do't even have to be a member or qualify in any way.  You just have to show up when they are distribution the items.

Don't be too proud to accept such gifts.  Getting some of your grocereis for free will free up funds to either pay down more debts or add to your emergency fund.

I remember when my two youngest sons were small, I used to get a lot of groceries and gently used household goods from various organizations.  It freed up money to do other things life making sure the rent or utilities were paid or gas was in my car.

If you are in the United States, it's also not a bad idea to see if you qualify for the Supplemental Nutrition Assistance Program (SNAP).  

Any hand up will help you steadily move from struggling financially to achieving financisl freedom.  

Review your company's benefit package

Are you mising out on benefits your company offer?  Periodically review your medical insurance to see if you have the most cost effective package for you and your family.  

  • If your kids are older a high deductible health plan may work for you.  High deductible plans work with a Health Savings Account (HSA) where you save money in an account to cover any medical expenses not covered by your health plan.  The HSA account is your own and you can take it when you move to another company.  Note that you cannot contribute to an HSA unless you have a high deductible health insurance plan.
  • Check to see if your company provide free mental health counseling or have health center on site.  Take advantage of these benefits as they can save you thousands of dollars in medical expenses.  Some companies will cover the first six sessions for their employees to see a therapist.  
  • Most large and midsize copanies will have programs to help employees such as:
    • discounts on gym membership 
    • free or discount tickets to movies, sporting events, or attractions
    • pre-tax purchase of fares on public transportation including Uber
  • Would your company allow you to work from home a couple days per week or month thereby saving public transportation fare, gas or toll expenses?  

Don't be afraid to enquire as to what benefits and perks are available to you as an employee.  You'd be pleasantly surprised at how these seemingly insignifican perks prevent you from spending extra and gives you peace of mind you didn't know existed.

Any and all of the above could save you big bucks and free up money for more debt payments and investing.  Take some time every now and then to see what's available to you.

Get free food with Too Good to Go

According the the US Department of Agriculture (USDA) 30-40% of the US food supply is wasted.  

The app Too Good to Go gives you the opportunity to get top quality restuarant food that would be thrown out anyway for a fraction of the cost.  You can also get groceries at a fraction of the cost from participating grocery stores as well.

Try it out. Read the reviews on Google and see if this could help you to reduce your food cost while freeing up money for other items in your budget.

Conclusion

Millions of people have attained financial freedom and many others who are on their way. It is possible to live your dreams and have the life you’ve always wanted. 

For some people, this may mean owning a home without a mortgage and having enough in savings for retirement. For others, it might mean being able to pursue a passion like writing or traveling while still having money left over at the end of each month–and not having to worry about paying bills!

The most important thing is to make sure you have a plan for your money. And it’s not too late to start. So take baby steps and start where you are. 

I believe that everyone is willing to take control of their finances and implement sound financial practices so they can be financially free.

Disclaimer: This article is for informational purposes only.  It does not convey any professional advice.  Each person’s financial situation is different and deserves individual attention.  Please seek the help of a professional if you need help with your personal finances.  Of course, you can do the research on your own if you prefer.

Need help to find out where you are with your finances? Take this simple Quiz to get a clearer picture of where you are financially.