Growing Your Financial Freedom

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How can you invest and save money this year? Six words:

Grow the Gap, Guard the Gap.

That’s it, in a nutshell.

What is the gap?  It is the space between all of our expenses and our income, or the “extra” money left over after expenses. If you’re spending more than your income, your gap is in the negative, and that’s definitely not good! 

“It’s in your gap that all your financial freedom is created—in that space between your income and expenses that you can start to grow your financial freedom.”

Your financial freedom lies in maintaining that gap. First of all, identify your expenses. Then, put them into three different buckets: fixed expenses, flexible expenses, and debt repayment. This last bucket has two options: slowly pay it off, or, you can choose to sell whatever has caused the debt. 

Reducing expenses and increasing your income help grow the gap, and increasing your income may include switching to a different job or earning extra income through an additional job or side hustle. 

Controlling Your Finances

“One of the things I love about the gap is it’s one of the numbers we have the most control over, because there’s so many different levers.”

The next step to maintaining the gap is to guard it, and this can be difficult. Whenever we get extra money or income, it can be easy to want to spend it in another area. 

“There’s this temptation, now that you can afford things, to just upgrade.”

When Jillian and her husband adopted their kids, there was a lot of pressure to buy a bigger home. While living spaces were tight, they knew that it was an expense that wasn’t worth it, and that there were other things they could do with the extra $1000 they were saving every month. 

When you have the gap, the best thing to start with is paying down debt. Next, it’s a good idea to keep an emergency fund or life transition fund as a buffer for when things in life go wrong or big changes happen, as well as a savings for larger purchases in the future. Finally, the last way to grow the gap is to invest! This will help you grow it for bigger goals and retirement.

Here’s a breakdown of the episode:

[00:32] The gap is the space between expenses and income. Grow the gap, guard the gap. These are six words that sum up how to be good with money.

[02:03] Your expenses can be put into three different buckets: fixed expenses, flexible expenses, and debt repayment. For debt repayment, you can choose to slowly pay it off, or, sell the thing that is causing the debt. 

[03:15] In order to grow the gap, you can reduce your expenses or increase your income. While you can grow it by reducing expenses, increasing your income is a really good idea. This may include a different job, more hours, or a side business. 

[04:15] Guarding the gap can be difficult, because it’s easy to use our “gap” money to upgrade things. 

[06:34] When you have your gap, you can use it to pay off debt, create an emergency fund, create savings for bigger purchases, and lastly, invest it for big things in your future, like retirement.

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