July 24, 2024

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How to Improve Your Finances, No Matter How Messy They Are

How to Improve Your Finances, No Matter How Messy They Are

Photo: Courtesy of Jamila Souffrant

In 2014, Jamila Souffrant had a revelation while sitting in traffic during her daily commute from Brooklyn to New Jersey: She had to quit her job. But walking away from a secure corporate paycheck 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 flash before my eyes, and I thought, I’m stuck, and I cannot keep doing this,” she says. “So I got home and started Googling, ‘How do I retire early?’” 

Her search turned up podcasts and blogs about personal finance. “I learned about all these regular people who weren’t rich and didn’t have extraordinary careers, but who were able to reach financial independence by being frugal, investing their money, and saving,” she says. “Slowly, I started gaining knowledge.” 

Now a mother of three, Souffrant runs her own business, Journey to Launch, to educate others about the process of gaining control of their finances. (While she’s hardly retired, the success of her company did allow her to leave her corporate job even earlier than she hoped.) Here, she describes the steps to financial independence that everyone can take, no matter what their starting point is.

How did you change your own finances in order to quit your job? 
Before I got into all this, my husband and I weren’t saving much at all. When I look back, I’m like, “What were we spending on?” We had a lot of leaks in our budget. The first year that I got serious about saving, we made some big changes. For instance, we were both driving luxury cars, and we traded them for much cheaper Hondas that we still have. But we also made a lot of smaller, day-to-day tweaks. We made a budget and put limits on how much we spent on “nice-to-haves” like eating out. And it really paid off — we saved and invested $85,000 together in that year. That’s a huge leap, and I know that’s 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 your balances regularly.

I like that you’ve broken down the process of financial independence into five different stages. There’s an entry point for everyone, even if you have a ton of debt. Can you describe the stages?
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 — it’s just the starting point.

The first stage is what I call the “explorer” stage — you’re trying to get your bearings, and you’re working on financial stability. People in this stage usually don’t feel in control of their money. They’re spending more than they’re bringing in, and maybe they’re in the red every month and feel overwhelmed. Like, “Wow, I need to get it together, but I don’t know how.” They need to focus on getting organized and finding a system to help them keep track of their money. Their goal is to be able to afford their expenses and minimum debt payments, so that they’re not going further into debt.

Once you’re financially stable, then you can move on to stage two, where you work on debt freedom. If you’ve got consumer debt, you want to get rid of it as fast as possible. So you’re finding 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 in this stage, because interest rates on those are usually much lower, so it’s fine 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 rid of it, either.

Once you’re out of consumer debt, then you get to stage three. This is where you’re working on financial security. You have no debt besides your mortgage or student loans or anything else you strategically want to have. So you work on saving and investing and building assets. At this point, you get to decide what to do with your money — it doesn’t all have to go to credit cards, and you can put it toward your investments or your 401(k). You’re building wealth.

The fourth stage depends on what your saving and investing targets are. You have work flexibility or you’re in the process of securing it. You’re building and preserving your assets. You can leave a job and take time off if you want, whether that’s to have a baby, travel, or start a business. It doesn’t necessarily mean you’re financially independent and you 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 money. That’s the stage I’m currently in. I have the flexibility to take a break from working if I want, and I am in control of how much I work.

Stage five is where you reach financial independence, and you don’t have to actively work if you don’t want to. You have enough money saved and invested that you can live off the dividends, and work is completely optional. So you can just focus on preserving your wealth and doing whatever is fulfilling for you.

A lot of people might stay in one stage for years — or even forever. Is that okay?
There’s no rule of thumb of how long each stage takes you. Plus, your goals or circumstances can change within the stages. Like, how much money you think you need to quit that job or feel secure — that may shift. Or you could hit a setback.

A lot of people in the first two stages get a little frustrated because they’re like, “Well, I did the math and it looks like I’ll be paying off this debt for the next five years.” And I’m like, that’s okay! Every step still gives you more freedom. And it’s worth taking those steps, even if the biggest goals seem impossible. Every person’s entry point and process is so unique.

A lot of people get intimidated by financial planning because they worry they’ll be told to cut back on things they enjoy. How do you deal with that?
Your lifestyle is a big factor in your financial plan, but that’s not a bad thing. Some people can become financially independent with much less money, because they don’t mind spending less. That’s not the case for me; my lifestyle, and what I imagine for myself and for my kids, costs more. So I want and need more money. It’s also important for everyone to set their own targets for the life that they want to live. What’s that tradeoff between work and not working? What’s the tradeoff between what you’ll do for money, and what’s not worth it for you? Do you need $50,000 a year to feel comfortable, or do you need a lot more than that?

What about people who don’t know? That seems like a really overwhelming decision — like, I have no idea what amount of money would make me feel comfortable and secure versus insecure.
Sometimes it’s easier to think about the life that you want. Forget about money, forget about expectations of society or friends and family; what would allow you to live how you want to live? These lifestyle goals can be incremental. Maybe your goal is that you want to be able to pay for your kids to do an after-school activity, and then you want to be able to pick them up instead of working a second shift. What do you need to do to make that happen? Or maybe you want to take at least two vacations a year, and you want to be able to go somewhere nice. Or maybe you want to stop worrying about your credit-card bill. And from that goal, you can look at what it means in terms of money, and how much.

Some people think personal finance is very simple, because it comes down to your income and your expenses. But obviously, there’s so much to unpack in those two things. The difference between your income and your expenses gives you that gap in which you can meet your goals. But you can’t just flip a switch in your mind and make that happen.

I’m glad you aren’t saying that all it takes to pay off 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 something they really enjoy is just not going to happen. So you have to find a tradeoff. Like, I love to go out to eat, and I don’t want to cut that out. My options are to cut it back a little bit, or I find something else to cut that doesn’t matter to me as much. And it takes time. Some people need to figure out what works for them and what doesn’t.

Most people are never going to be able to retire early — it’s a big goal for them to be able to retire at all. And that can be really discouraging, especially when they see stories like yours. What kind of advice can you offer those people?
I don’t blame them for feeling that way. I do think that the standard, pull-yourself-up-by-your-bootstraps advice is not helpful for a lot of people because their circumstances are out of their control. I know what that looks like. I’m from Jamaica and I was raised by a single mom. I still have siblings in Jamaica, and they probably can’t imagine not working, or the amounts of money that I’m talking about. It would be naïve and wrong of me to say that financial independence is possible for everyone.

Logistically, the numbers might not line up. So there’s privilege to this, and it’s important to acknowledge that. But it’s also important to recognize that there’s freedom at every financial stage. Like, becoming financially stable can be a huge accomplishment. Even if that’s as far as you get, that’s something to be proud of. And feeling in control of your money is hugely powerful in and of itself. I don’t care if that’s your only goal. It’s still worthy.