Ditch that budget and craft a 'financial freedom' plan instead

  • Define your financial goals and values and then study how and why you already spend your money.
  • Websites and smartphone apps can help with tracking spending patterns.
  • Developing "mindful awareness" of emotions and judgments that create spending "needs" will lead to change.

Creating a "financial freedom" plan can put you on the path toward the life of your dreams.
Konstantin Postumitenko | Getty Images
Creating a "financial freedom" plan can put you on the path toward the life of your dreams.

I don't know about you, but I hate the word "budget." It suggests scarcity and constriction.

Though I have always been more likely to indulge myself than to deny myself, I have come to realize that with money, as with life, boundaries are often necessary to create more freedom. So I call my budget my "financial freedom" plan.

A financial freedom plan

How can you create a financial freedom plan? The first step is to define your goals and your values. What would you be doing if you had more time? What responsibilities would you give up if you could? Where do you see yourself in five years if everything goes right in your life? It helps to bring as much detail as you can to your vision. Knowing that I am living my dream of varied days, using my skills to help people find peace and overcome challenge in their financial lives, motivates me to stick to my plan.

The next, and hardest, step is to understand how and why you are spending your money. Websites such as mint.com and ynab.com categorize all of your purchases to help answer the question of how you spend. My husband and I have found the app Home Budget has helped with the process of answering the why. The need to manually enter every purchase requires us to bring mindful awareness to each individual spending decision.

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Mindful awareness does not necessarily lead us to perfect financial decisions. We are human, after all, and our purchases serve many needs beyond financial — some worthwhile, some not so much. We are all guilty of referring to our "wants" as needs, such as "I need a new outfit for the party." The problem arises when, in pursuit of pleasure, we put our security and our values at risk.

Know that developing greater awareness of the emotions and judgments that create your spending "needs" will lead to change. And recognize that it is curiosity and compassion, not judgment and disapproval, that encourage this change.

Questions to ask

How can you be sure that you are making responsible spending choices? Before you make a purchase, ask yourself:

  • Will this purchase be contributing to high-cost credit card debt?
  • Will this choice leave your emergency fund with less than three to six months of living expenses?
  • Will your spending keep you from saving toward your retirement?
  • And the most important question of all: Will this purchase move you closer to your goals and values?

Close to four years ago, I answered no to that last question and it changed my spending habits and my life.

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You, too, can create a "financial freedom" plan to put you on the path toward the life of your dreams. To create your plan, envision that life, understand the how and why of your individual spending decisions, and bring nonjudgmental awareness to your current spending habits. And don't forget to:

  • Appreciate your money and what it enables you to accomplish.
  • Forgive yourself for being human.
  • Recognize that you can always start again tomorrow.

(Editor's note: This article originally appeared at Investopedia.)

— By Laura Ingber Rotter, founder of True Abundance Advisors

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