Most people don’t understand they can’t afford the lifestyle they lead. Our lives involve more than having enough cash to cover expenses.
To build our dream lives, we must navigate through a plethora of financial options, all dealing with the past (debt), present (savings), and future (investing).
Financial Awareness is the ability to visualize multiple outcomes from financial decisions and make the one that makes the most sense with the available information. Don’t worry; I’ll dig in further.
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What is a financial decision? To comprehend financial awareness, we must first understand the power of financial decisions.
We make many financial decisions every day. Should we buy Starbucks or make coffee at home? Should we purchase the $50 toy for our kids? When can we get a new couch for the living room?
Our lives are a series of financial decisions we must make (or avoid). Some choices we cannot make ourselves, like when we have a death in the family. We immediately must drive or fly home, for example.
How we make these choices determines if we will be poor, middle-class, or rich. Needless to say, the more options we give ourselves, the better choices we can make.
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How to become financially aware. Most people will never become financially aware because (on the surface) it’s much easier to avoid the process.
They will let their paycheck decide their lifestyle. They pay their bills, and whatever is left over is their monthly cash flow. We call this “living paycheck to paycheck.”
The most important step to becoming financially aware is developing a hardcore budget. Intelligence is the act of making finer distinctions.
When we create a hardcore budget that divides food, entertainment, and utilities into finer categories, we start to develop our financial intelligence.
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An example of financial awareness. Let’s say we create a $1,000 food budget for our family of four. We divide the budget into four weeks of $250 each.
Throughout the month, we realize that we give our younger son $70/month toward eating at school. We became financially aware; now it’s time to create some options for ourselves.
- We can lower the overall food budget to $930 and create a category for school lunch at $70 per month.
- We can keep our $1,000 food allowance and take the $70 from another pot.
- We can see if we can purchase the food for school lunch out of our $1,000 stipend.
There is no right or wrong answer, but we gave ourselves plenty of options. However, we became financially aware because of our attention to detail concerning our budgets.
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Living on a budget, enjoying passive income. Becoming financially aware is even more fun when you add passive income into the mix.
The art of living a great life starts with your hardcore budget. Your budget should cover everything in your daily life.
Adding passive income from dividends, rents, and royalties gives you more options outside the budget.
This is how I explain financial awareness to my son. Everyone loves to eat pizza; financial awareness is deciding between frozen Walmart pizza, Little Caesars pick up, Papa John’s delivery, or going to an expensive local pizzeria.
The key is enjoying each way you decide to eat pizza. If you can make these choices seamlessly and unapologetically, you can become rich.
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Let’s dive a little deeper into my pizza scenario. Let’s say the family has $50 left in its food budget on the last day of the month; we may decide to get some Little Caesars pick-up.
How about I receive a $20 dividend from AT&T (T)? I may pick up some frozen pizza from Walmart and some Coke.
Let’s say I made $200 in book royalties on Amazon, so I want to take my family to the fancy Italian pizzeria downtown.
Finally, I saved all the money I made from trading options over a year, totaling $8,000. My wife and I traveled to Italy to taste the pizza there.
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The magic of having options. The more options you give yourself, the more financially aware you become. You need a mixture of income streams, budgets, and spending options to give yourself the best chance of thriving.
Creating a livable budget is the toughest part of building your financial intelligence and becoming financially aware.
Somewhere along the line, “budget” became a bad word. However, having a budget will give you the largest amount of freedom you can imagine.
A budget allows you to account for every dollar that comes in and out of your household. If you know something keeps popping up throughout the month, create a budget for it.
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For example, you and your wife always seem to purchase movies on VUDU over the weekend. You decide to buy them from each of your personal allowances.
However, you can decide to lower your personal allowances from $600/month each to $550. Then, you can create a $100 entertainment budget for movies.
You can use that $100 to purchase AMC movie club passes for $20 per month or buy three Blu-ray discs and popcorn. Or continue to buy movies from VUDU; the choice is up to you both.
The magic of a budget is that it forces you to become financially aware. As you drill down your spending, you will become more creative with your family, income, and choices.
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Once you care deeply for your money, you will want to create more; this is where you start to make passive income.
Once you account for each of your dollars from your job, you can focus on more income for your household. You can deploy an ATM, rent your car, or get roommates.
Whatever you decide, you will have even more resources to increase your financial awareness. Eventually, you’ll have more financial options than you can imagine.
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Conclusion. The road to financial awareness requires a steep learning curve. You are essentially learning to balance debt, savings, investing, budgets, and emotions.
Something may not make financial sense, but it is the right emotional choice. You may want to save some money by painting your house by yourself, but the more realistic option is to hire someone.
These choices boil down to financial awareness. People focus on Starbucks as a way to save money for the month.
However, if you love Starbucks, create a budget for it. Give yourself $100 monthly for Starbucks, which will ensure you appreciate each opportunity to get some coffee.
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Better yet, create a dividend portfolio that pays you $100/month that you can use for your coffee habit. This path allows you to resupply your coffee allowance indefinitely with dividends (and without working).
We can’t get into the passive income stage without going through the budget stage. Budgeting is the single most critical part of living your dream life.
The more distinctions you make inside your budget, the more financial intelligence you build. With more intelligence, you become more financially aware. Life is good on this side. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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