Right now I am teaching a personal financial planning course. It is a little outside of my areas of expertise so I brought in 2 guest lecturers. My students learned a lot from people in the finance industry as they teach outside of the textbook and more about real-world examples and application.

The biggest lesson I have learned from this experience is that we have a different mindset when it comes to our personal finances. When managing cash for a business we tend to make fairly educated decisions. For example, we analyze why we need the new equipment and how it will create efficiencies. Or we have a list of reasons why the new item is necessary for the business or how it will be beneficial in the long-term. This does not appear to be the case with our personal monies.

As individuals we tend to participate in emotional purchasing. We buy what we want vs. what we need. We make impulse purchases (and stores know this, which is why they have so much “stuff” near the cash registers). Or we can be guilty of buying something when it is on sale so we can brag about what a great deal we got.

One of the guest lecturers had a tool that showed the difference in the amount of money someone would have if they invested 5 percent of their income over a 20 year period. He then compared this to how much money they would have if they increased the investment to 10 percent. This difference was staggering. If we could all cut out 5 percent of our spending and put that money into a savings account we would all be much more prepared for retirement.

Personal financial planning does take time. I have learned a lot about my own personal goals and limitations during this process. It was interesting to see what my net worth is as I haven’t completed a balance sheet using my personal information before. Where you really see your spending habits is in the creation of an income statement. Once you see where you are spending money, it is easier to make changes.

So set aside some time to write your short-term, intermediate and long-term financial goals. Then create a balance sheet to determine what you own and what you owe. From there complete a summary of your income and expenses. Find an area or two where you can reduce your spending and allocate that money into a savings account. You are on your way to financial freedom.