Sweet Freedom!

I've indicated previously that we hit rock bottom financially, we lost our home and were forced to file for Bankruptcy. We'll be writing another blog on Chapter 13, the one we chose, because it allowed us to pay all of our creditors back. However, this has not been easy and we've had to take extreme measures to be faithful to our plan and avoid never going back. One life saving step we took is the topic of this blog.

We must give credit to our dear friends John & Dixie Farnsworth for the next topic - Freedom Accounts. John and Dixie started this self-initiated program and they credit it with keeping them financially solvent, despite trying economic times. We were so excited when they shared it with us that we adopted it immediately.

A Freedom Account is meant to accomplish just that, freedom. The medium is a spreadsheet for tracking planned and unplanned expenses. If you are like me you've done 100's of these over the years and none of them have worked. However, this one is so simple that it's actually brilliant. After the first month of adopting this system, we were able to put money in to our Freedom Account that we did not believe existed previously. It is the FIRST time we are seeing tangible results from a 'system' and we also have hope for our financial future!

Here's how it works. By the way, you can do this with or without a computer. Our friends have never owned a computer so they use old-fashioned graphing paper.

In order to do this you will need a checking account and a savings account that provide the ability to transfer funds freely between them. We opened our accounts at a Credit Union. They offer free checking, free bill pay, no charges for account transfers and they pay interest on all accounts (albeit small, they pay interest).

All monthly expenses will go in to one of two buckets; 1) Monthly Known Expenses or 2) Anticipated (Freedom Account) Expenses. All monthly income is deposited into the checking account and the monthly known expenses remain there. The Freedom Account funds are moved to your savings account.

You will maintain a spreadsheet for each of your Freedom Accounts and track credits and debits for each transaction and you'll keep a simple spreadsheet for allocating your funds each pay period (I'll go over each of these individually). This is the most time consuming piece, but also the most rewarding. This is where you get to see your savings account grow. Here's an example of the types of accounts we manage;

Monthly Expenses

• Mortgage Payment
• Utility Payments
• Gas
• Groceries (Dining out is a freedom account)
• Internet/TV
• Car Insurance
• Cell Phones
• Slush (sounds funny, but I keep a small slush for unexpected expenses)

Freedom Accounts

• Entertainment/Dining Out
• Homeowners Insurance (we pay quarterly so I've set it up as a Freedom Account to accrue the funds each month)
• Auto Repair/Maintenance
• Medical
• Gifts
• Vacations
• Home Improvement/Maintenance
• Personal/Discretionary
• Emily's Wedding (our daughter is getting married next year - wish we would have started earlier)

Allocation Spreadsheet

Clearly, the planned expenses have to be paid each month, so the first step in setting up your spreadsheet is to list all of planned expenses with a column next to each item noting the amount. Forward all of those balances to a 'total' column so you know what your 'do or die' costs are each month.

Larry and I get paid bi-weekly so this means that I have separated my bills by date. This way I can estimate which bills get paid by which check. Here's how it looks (actual numbers have been changed to protect the innocent)!

Paycheck	Sep 10, 2009		Sept 24, 2009
	1000		1000
Internet			10
Grocery	175		175
Gasoline	200
Electricity	100
Mortgage			400
Car Insurance			100
Cell Phone			100
TV			50
Slough	50
TOTAL EXPENSES	525		835
FREEDOM ALLOCATION	475		165

As you can see above, Larry and I get two checks, one on the 10th and one on the 24th. I've listed the $1,000.00 check amount below each date.

I've placed the amount due to each of my service providers under the pay date that the bill is due. As an example, our internet bill is not due until the 28th of the month, so I budget for that account with the second check of the month.

You will see that next to the TOTAL EXPENSES column, I've totaled the amount for all of my fixed bills. The next column down is the FREEDOM ACCOUNT ALLOCATION FUNDS. This is the amount that is left over from our income to put towards our Freedom Accounts. So, in the example above, I have $475.00 from our first check to allocate to our Freedom Accounts.

The second component of the ALLOCATION spreadsheet is to apply the funds to your Freedom Accounts. This is completely to your discretion and, on some months, you may not be able to contribute more than $10.00 or nothing at all. Over time, the smallest amounts will accumulate. For some of you, like us, this will be the first time you've seen anything go in to a savings account! Here's what the Freedom Account allocations look like:

FREEDOM ACCOUNT
	Sep 10, 2009		Sep 24, 2009
	475		165
Tithing	100
Ent/Meals Out	30		30
Homeowners Insurance	35		35
AutoRepair	50		20
Medical	50
Gifts	20		20
Home Improv	100
Emily’s Wedding	50		50
Personal/Discr Money	40
	475		165

As you can see from the example above, there wasn't enough money to allocate funds to some of my freedom accounts in the second pay period. This is expected from time to time. The good news is that you are preparing for the future for these areas in your life and will be better prepared than had you done nothing at all.

Once you've completed the allocation worksheet, you move the allocated Freedom Account Funds (in this case $475.00) to your savings account. You will track each of your Freedom Accounts on your primary Freedom Account Spreadsheet. Going forward, each time you have an expense out of one of those accounts, you refer to your spreadsheet to confirm that funds are available and move them back to checking so you can use the funds.

It takes time to set up the spreadsheets but once they are done, it's quite simple to maintain. When our friends John & Dixie were approached by their daughter recently to announce her engagement and confirm that they were going to pay for her wedding, they had no reservations. Thanks to 16 years of their Freedom Account accumulations, they were able to give generously and throw their daughter a wonderful wedding.

I hope this helps! It's been a miracle for us. If you have questions or would like copies of my spreadsheets, email me at catpawnderings@gmail.com. I'm happy to help all of you get started with your own Freedom Account!

Whether you use the Mvelopes system by Crown Financial, Dave Ramsay's Program or Suzi Orman's tips - DO SOMETHING!

A few notes:

1) Before we started this, we cut back to the VERY basics on everything! That includes basic cable tv, lowest cell phone plan, shopped for aggressive car/home insurance, converted our utilities to monthly average bills so they don't vary, and committed to walking or riding our bikes rather than automatically starting the car each time we go out.

2) We committed this plan to each other and to God. Accountability was huge for us - we had failed so many times in the past that this had to be a no fail system.

3) We found mentors to help us along. John & Dixie have been a tremendous source of support, love and encouragement. We love them dearly!

4) We limited our dining out with the agreement that we will either share a meal (more than enough in today's restaurants) or we do Happy Hour's. We've cut out dessert and alcoholic beverages from our dining out experiences. Before you quit here, think about it. Is that $4.00 glass of wine worth the $10.00 that you'll pay the restaurant? Enjoy a glass of wine at home before you got out - you can actually do this!

5) Finally, if you find that you don't have enough income to cover the monthly planned expenses - you'll have to do what we did. Get serious about your expenditures and get rid of those that you don't need. Start selling stuff to raise capital, get a second job or a start a part-time home based job. As far as your freedom accounts are concerned, start with $10 divided among all accounts. It sounds crazy but that's $120.00 in emergency funds that you wouldn't otherwise have.

6) Don't beat yourself up if you stumble getting started. After we learned about this system, it took two months to make our first deposit. You are turning a huge ship around and it will take time.