We also learned that nearly half of all Americans already meet this criteria and that the average adult is only $1,301/year ($.63/hour at 40 hours/wk, for those counting) from doing the same. Lastly, we reviewed some troublesome statistics regarding the money situation of everyday Americans:
- Up to 78% report living paycheck-to-paycheck
- As many as 72% identify as being stressed by money
- 57% have less than $1,000 in savings
- 39% have no savings at all
The obvious question remains: why this stark discrepancy between high average income and extremely low levels of personal prosperity?
Financial Intentionality Defined
I believe this wide gap can in large part be attributed to a simple lack of financial intentionality. Intentionality is officially defined as “The fact of being deliberate or purposive” and is derived from the word intentional, defined as “done with intention or on purpose“. Synonyms for intentional consist of “designed” and “planned“, while “accidental” serves as a good antonym.
Financial intentionality is, quite simply, the concept of being intentional, deliberate, and purposeful with one’s finances. It is the exact opposite of the easy-come, easy-go default approach to money that is adopted by many.
In practical terms, financial intentionality consists of identifying lifestyle goals which have financial requirements, then reverse-engineering those requirements to determine annual, monthly, weekly, and daily action items.
Get Financially Fit
Think of this concept in the context of physical fitness. You won’t see any improvements on the scale or in the mirror simply by occasionally wishing for them.
To see true progress, you have to break down your fitness goals into actionable steps that chart the course to your goal one day, week, and month at a time. You then have to form the habit of performing these small steps in order to reach your ultimate goal.
The same is true for your finances. Living in a whirlwind of cashing paychecks, paying bills, and just trying to keep the bank account in the black while occasionally dreaming of what could be will never provide superior results.
To achieve financial freedom, you need to identify your ideal future state and desired timeline, then reverse-engineer the individual actions that it’ll take to get there. Build the habit of paying yourself and your financial goals first, and of living on what is left.
Financial Intentionality In Action
Here’s a real-world example from the very own journey of Mr. & Mrs. FFP. Before we were married, we knew that we shared three distinct lifestyle goals:
- Owning our own home
- Starting a (potentially large, by today’s standards) family
- Investing in said family by raising children with one full-time parent in the home
After we were married, we took a look at these goals and determined that we wouldn’t be able to accomplish all of them on our entry-level salaries by simply employing a typical approach to finances.
We knew we couldn’t afford to live the life we desired on only one income if we had a mortgage payment in the mix as well. This meant that if we had any chance of achieving all three of our original goals, we needed to purchase a home and pay off the mortgage prior to downsizing to a single income.
By extension, this meant we wouldn’t be able to start a family until we no longer had a housing payment. Since we also entertained the desire for a potentially large family by today’s standards, we didn’t feel comfortable waiting an extended period of time to start having children.
With these considerations in mind, we crafted a somewhat unorthodox financial plan that we believed would enable us to achieve all three of our original goals.
Our Unorthodox Plan
First, we calculated what level of monthly expenses (less housing) were required to lead a lifestyle we were comfortable with while we were both working. We took the difference between this and the sum of our monthly incomes at the time and identified it as our available total for housing costs.
Prior to purchasing our first home, we calculated how much house we could afford based not on what the bank told us they felt comfortable lending us but on how long it would take us to pay the mortgage off. This timeframe was our primary criteria as it represented the minimum amount of time before we’d be able to consider downsizing to a single income and starting a family.
We stuck to this budget during our home-buying process and secured Home-Sweet-Home with an estimated payoff duration of just three years and 2 months, predicated on our making approximately quadruple mortgage payments over that span.
We set up automated quadruple payments on the first of every month and lived comfortably on what was left, confident that we were on track to our goals due to the presence of our intentional plan. Exactly three years and two months later, we were mortgage-free and Mrs. FFP “retired” to stay-at-home wife and mother-to-be status in support of Goals #2 and #3.
The Benefits of Financial Intentionality
With no mortgage payment, our remaining (median) income stretched quite far, enabling us to pursue additional financial goals such as financial independence.
Had we employed the typical approach to our finances, we could have inflated our lifestyle during our dual income years, purchasing a new vehicle off the lot every year or buying a house 3-4x as expensive as the one we purchased.
Had we done so, our financial options would have been far more limited later in life as cash-flow concerns would have dictated our lifestyle and inhibited our ability to lead a life based on our goals and values.
Financial intentionality not only saved us tens of thousands of dollars in mortgage interest, it enabled us to achieve a combination of lifestyle goals which at first glance appeared to be mutually exclusive. It also gave us the peace of mind to know that we were “on track”, as we never had to stop and wonder whether we were spending money on things that were inhibiting our long-term goals.
A Wonder Of The World
If compound interest is the 8th Wonder of the World, I contend that financial intentionality is the 9th! It is truly amazing how much can be accomplished with so little if discipline and dedication are employed.
This concept is exemplified nowhere better than by the ancient civilizations which created massive structures such as the 7 Wonders of the Ancient World with nothing but primitive tools and the sweat of their brow.
The Key To Your Freedom
So what potential does financial intentionality hold for you? What level of financial freedom do you crave? Time to expand your horizons and dream a little. If money were no object, what lifestyle freedom would you claim?
- Eliminating the stress of living paycheck-to-paycheck?
- Becoming debt-free?
- Quitting the high-paying job you hate for a lower-paying one that you love?
- Downsizing from dual to a single household income?
- Moving closer to friends or family?
- Travelling or taking extended vacations?
- Giving generously to friends, family, or charity?
- Saving for your children’s college education?
- Starting your own business?
- Retiring decades ahead of Social Security eligibility?
The above are just the tip of the iceberg in terms of the possibilities available if you implement the concept of financial intentionality in your own life.
I have found financial intentionality to be the single most important element to the success of aggressive financial goals, particularly for those of modest means who have little to no margin for error.