How to improve your finances no matter how messy they are
Photo: Courtesy of Jamila Souffrant
In 2014, Jamila Souffrant had a revelation as she sat in traffic on her daily commute from Brooklyn to New Jersey: She had to quit her job. But stepping away from a secure corporate salary wouldn’t be easy. She was pregnant and she and her husband had recently taken out a mortgage to buy their first home. “I saw my life pass before my eyes, and I thought, I’m stuck, and I can’t keep doing this, “she said.” So I came home and started to google, ‘How can I retire sooner?’
Her research revealed podcasts and blogs on personal finance. “I heard about all these ordinary people who weren’t rich and didn’t have amazing careers, but who were able to achieve financial independence by being frugal, investing their money and saving,” he says. she. “Slowly, I started to acquire knowledge.
Now a mother of three, Souffrant runs her own business, Trip to launch, To educate others about the process of taking control of their finances. (While barely retired, the success of her business allowed her to quit her corporate job even sooner than she hoped.) Here she describes the steps towards financial independence that each person has. can cross, whatever its starting point.
How did you change your own finances to quit your job?
Before I got into all of this, my husband and I weren’t saving much at all. When I look back I think to myself, “What were we spending on?” We have had a lot of leaks in our budget. The first year that I got serious about saving, we made some big changes. For example, we both drove fancy cars and traded them in for much cheaper Honda’s that we still have. But we also made a lot of small day-to-day adjustments. We budgeted and set limits on what we spent on “goodies” like eating out. And it really paid off: we saved and invested $ 85,000 together that year. This is a huge step forward, and I know it is not feasible for most people. But I think everyone can still benefit from the same tactics we used, like making sure every dollar has a job to do, and checking your budget and balances regularly.
I love that you have broken down the financial independence process into five different steps. There is an entry point for everyone, even if you have a ton of debt. Can you describe the steps?
I wanted to create different stages because I think everyone should have unique goals for themselves and they shouldn’t feel bad about where they are – that’s just the starting point .
The first step is what I call the “explorer” step – you are trying to find your way around and you are working on financial stability. People at this point generally don’t feel in control of their money. They spend more than they earn, and maybe they’re in the red every month and feel overwhelmed. Like, “Wow, I need to get organized, but I don’t know how. They need to focus on organizing and finding a system to help them track their money. Their goal is to be able to pay their expenses and minimum debt payments, so they don’t get into more debt.
Once you are financially stable, you can move on to step two, where you work on debt freedom. If you have consumer debt, you want to get rid of it as quickly as possible. So you find money in your budget to pay off your credit cards and any personal loans or car loans. You don’t need to get rid of student loans or mortgages at this point, as the interest rates on them are usually much lower, so it’s good to take longer to pay them off. When I started this process for myself I was in stage two / three because we didn’t have a lot of debt but we weren’t totally free of it either.
Once you have no more consumer debt, you move on to step three. This is where you work on financial security. You have no debt other than your mortgage or student loans or whatever else you strategically want to have. So you work on saving, investing and building assets. At this point, you decide what to do with your money – it doesn’t all have to go to credit cards, and you can spend it on your investments or your 401 (k). You are creating wealth.
The fourth step depends on your savings and investment goals. You have work flexibility or you are in the process of securing it. You build and preserve your assets. You can quit a job and take time off if you want, whether it’s to have a baby, travel, or start a business. It doesn’t necessarily mean that you are financially independent and have all the money you need forever. But you have enough of a cushion that if something isn’t working for you – a job, a relationship, a boss – you don’t have to stay in that situation just because of the money. This is the stage I am currently in. I have the flexibility to take a break from my work if I wish, and I control the amount of work I do.
The fifth stage is where you achieve financial independence and you don’t have to actively work if you don’t want to. You have enough money saved and invested to be able to live off dividends, and the work is completely optional. So you can just focus on preserving your wealth and do whatever is convenient for you.
Many people can stay in one stage for years or even forever. Is it OK?
There is no rule of thumb about how long each step will take. In addition, your goals or situation may change during the stages. For example, how much money you think you need to quit this job or feel safe – that can change. Or you could have a setback.
A lot of people in the first two stages are a little frustrated because they’re like, “Well I’ve done the math and it looks like I’m going to pay off this debt for the next five years. And I say to myself, it’s good! Each step gives you even more freedom. And it’s worth taking these steps, even if the bigger goals seem impossible. Each person’s entry point and process is so unique.
Many people are intimidated by financial planning because they fear being told to cut back on the things they love. How do you deal with this?
Your lifestyle is a big factor in your financial plan, but it’s not a bad thing. Some people can become financially independent with a lot less money because they don’t mind spending less. This is not the case for me; my lifestyle, and what I imagine for myself and for my children, costs more. So I want and need more money. It is also important that everyone sets their own goals for the life they want to live. What is this trade-off between working and not working? What’s the trade-off between what you’ll do for the money and what’s not worth it for you? Do you need $ 50,000 a year to get comfortable, or do you need a lot more than that?
What about the people who don’t know? It seems like a really overwhelming decision – like, I have no idea how much money would make me feel comfortable and secure from being insecure.
Sometimes it’s easier to think about the life you want. Forget about money, forget about the expectations of society or of friends and family; what would allow you to live as you want? These lifestyle goals can be progressive. Maybe your goal is to be able to pay for your kids to do an extracurricular activity and then be able to pick them up instead of working a second shift. What do you need to do to make this happen? Or maybe you want to take at least two vacations a year and want to be able to go somewhere that’s nice. Or maybe you want to stop worrying about your credit card bill. And from that lens you can see what that means in terms of money and how much.
Some people think personal finance is very simple because it all boils down to your income and expenses. But obviously there is so much to unpack in these two things. The difference between your income and your expenses gives you that gap in which you can achieve your goals. But you can’t just flip a switch in your mind and make it happen.
Glad you weren’t saying all it takes to pay your credit card bill is to stop buying lattes.
A lot of people are already doing so much and working so hard, and asking them to give up on something they really love just won’t happen. We must therefore find a compromise. Like, I like going out to eat, and I don’t want to cut that. My options are to narrow it down a bit, or I find something else to cut that doesn’t matter as much to me. And it takes time. Some people need to understand what works for them and what doesn’t.
Most people will never be able to retire early – it’s an important goal for them to be able to retire at all. And it can be really disheartening, especially when they see stories like yours. What kind of advice can you offer these people?
I don’t blame them for feeling that way. I think the standard tip, pull yourself by your boots isn’t helpful for a lot of people because their situation is out of their control. I know what it looks like. I am from Jamaica and was raised by a single mother. I still have siblings in Jamaica, and they probably can’t imagine not working, or the amounts of money I’m talking about. It would be naive and wrong of me to say that financial independence is possible for everyone.
Logistically, the numbers may not add up. So there is a privilege in that, and it is important to recognize that. But it’s also important to recognize that there is freedom at every financial step. For example, becoming financially stable can be a huge accomplishment. Even though it’s as far as you get, it’s something you can be proud of. And feeling in control of your money is extremely powerful in and of itself. I don’t care if that’s your only goal. It’s still worthy.