This week we are going to have a little self-reflection. One thing I have learned over the years with my own money issues– and the money woes of my clients is that self-reflection is key to success.
Managing your personal finances is all about being brutally honest with yourself. The more consistent your self-reflection, the better you will grasp the success (or failure) of your financial situation.
In other words, if you want to succeed at money, you need to be constantly looking at your own life, your own goals, and your own choices until that kind of self-analysis becomes second nature. But, what if that type of self-reflection doesn’t come easy? I’ve found that when I’m struggling with money issues, the best way to start is with a question. I’ll ask myself a pointed question about my personal finance situation and make myself answer the question truthfully.
Usually, answering the question requires some time to ponder and evaluate my options or choices to date. Usually, it also requires some reflection about my goals and what I really value in life. By the time I can put together a reasonable answer to the question, I usually have some new insight into my situation.
Here are some great personal finance questions I have my clients ask themselves, and you can ask yourself. The process you have to go through to answer these questions fully and honestly will almost always point you toward better personal finance choices and behaviors in your life.
Is my savings on track for my retirement goals?
This means heading to a good online retirement calculator like bankreate.com and seeing what your pace looks like. Use some realistic numbers, like a 3% inflation rate and a 7% return on your investments.
Are you actually on pace to retire when you want to? What if you add a few years onto your working years? If you’re still not there, then this should be a wake-up call.
My calculator says at my current age, and my desire to retire at 65 with 85% of my current income, and a life expectancy of 90 years old, I will need to have $3,000,000 in a retirement account. When I put in my current pay and rate of savings – I run out of money when in am 88. I either need to make some changes now – while I still can – or learn to like 5 for $4 ramen noodles in my retirement years.
Do I have enough of an emergency fund?
I recommend that everyone have three months living expenses or at least $1,000 in their savings account for emergencies. If you don’t have that, achieving that should be your highest priority.
There are countless reasons for having an emergency fund, from car issues to illness to job loss to an unexpected expense.
What was the last money mistake I made and why did I make it?
Often, this is a spending mistake – you spent money in some way that you really shouldn’t have done. Other mistakes pop up as well, depending on when you ask this question.
It’s the second part that can be tricky. Why did you make that mistake? What about that situation caused you to use money in a nonsensical fashion? Was it the people? The place? The emotional state you were in? What can you do to keep that from happening again?
I tend to make the same small mistake over and over. I don’t like to shop so I tend to wait until I really need something and binge shop. Once I get in the groove of spending money, I buy things I don’t need, never use or just don’t like. I think I do this because I am rewarding myself for doing a task I don’t like by giving in to my impulses.
What I have done to fix this is shop online. I keep a list of the things I need. Then I go online when I know I have a deadline and must get in and get out of the website. For example, I shop online on Sunday morning. I have an hour between getting up, my morning routine and then getting out of the house for our Sunday schedule. This means I have to get my list, shop for the things we need and check out of the site within 60 minutes. No time browsing and checking out things not on the list.
I have also started this with my grocery list – and my food bill had gone way down. And the amount of tempting treats that always seem to just jump in my basket has also gone way down. I love online grocery shopping.
What am I doing to make sure my children have the education I desire?
First, you need to decide what does primary and high school look like? Are they going to public school or private school? If private, will you have enough left over to still pay for college?
Then you need to decide how you intend to help your children during their college years. Are you going to offer financial support in any way? Are you willing to pay for some of the educational expenses? All of them? What about student or parent debt?
If you’re going to help, are you saving for that right now? Let’s say you intend to help with $10,000 of their college expenses. That is $40,000 per child. How much do you have to save per year to make that happen? Are you actually saving that much?
I decided on a private middle and high school education for my children. It was expensive. One of my trade-offs for the cost of that was the hope that they would receive more in scholarships for college. I know we made the right decision for our family.
What big expenses do I know are coming this year?
These tend to be annual bills like property taxes, life, home or auto insurance. Rather than panicking when those giant bills arrive, a much better approach is to start saving for them now.
Let’s say you have a $4,000 property tax bill coming in eight months. Why not divide that bill into eight $500 chunks and save $500 each month so you can easily pay the bill? If you start now, it becomes much easier.
This is what your mortgage company does with the escrow account. Instead of having to come up with a big chunk of money at the end of the year, they just divide it by 12 and add that amount to your monthly mortgage payment.
What big expenses do I know are coming in the next five to ten years?
Most of us buy a car at least once or twice in a 10 year period. There is also the big vacation every few years, saving for a house or move, college, etc.
Just like with an annual bill, project the cost and date you will need the money, then divide it into monthly installments. This will make actually achieving that goal much easier, even if the road there isn’t quite as direct.
What would happen to me if I were to lose my job?
Do you have a plan for becoming re-employed? Do you keep your resume to date so that you’re an attractive hire? Do you have a side business that could help cover your expenses? Have you kept your skill set current? Can you pivot to another line of work? Do you have s short term solution for part time work while you look for another job? Can you freelance?
Those questions are on top of the big one about how you’ll financially survive after a job loss. What will you do for income? A healthy emergency fund makes this all a lot easier.
What would happen to me if my spouse died, became disabled or could not care for him/herself?
Could your family survive on just your salary for an extended period of time? Can you still work if you have to care for them? Is that something that is workable? If not, what can you do to make it work if necessary?
When my late husband became ill, this was my reality. Fortunately I had a great job that supported our family and had healthcare. But as he got sicker I had to decide whether to stay home to care for him or hire someone to help me so I could still work. For the first few years I had live in help so I could work to keep our health insurance benefits. As he neared the end, I had to leave my job to care for him.
It was only through our savings account and good financial planning in the early years of our marriage that allowed our family to survive this emotional and financial upheaval at all. I cannot imagine the impact on our family of losing not only a husband and father, but our home and stability as well. What is your plan?
What will happen when I die? Do I have a will, an estate plan or life insurance? Do I have a document that outlines where everything is? Does it include my online passwords?
For single people, this isn’t much of an issue. Their only estate concerns are usually funeral expenses.
For people in committed relationships and particularly people with children, this is a major concern. What becomes of those people who are reliant on you if you were to suddenly pass away? A term life insurance policy is vital in these situations.
You would think that with the answer to my pervious question where my spouse actually did die, I would have this under control. But no….
Last Saturday when my current husband and I were walking our dog, he suddenly realized that we have everything in place for the kids but they would have absolutely no idea what we have or where it is. We have moved to online accounts with no paper files. Our account numbers and passwords are in an online “vault”. They all live out of state and we do not share financial planners – so they would be clueless as to what or where our money is.
When we got back to the house we drafted an instruction letter with the pass word to the computer and the file that lists everything.
What can I realistically do to improve my income level?
Can you put yourself in a better position at work? Can you find a better-paying job elsewhere? Can you get a different part-time job, or perhaps start a side business?
Maybe you can start one of those businesses for under $2,000 that we talked about last week. That PDF is still on the website.
Did these questions make you re-examine your money management skills? Do you feel like you need to take more responsibility for your financial independence?
Here are my top 5 steps for taking personal responsibility for your money management so you can create a sustainable financial future for yourself and your family:
We’re human. And sometimes we make wrong choices. And even though we can’t turn back the clock, we can accept our mistakes and learn from them.
Acknowledge that every step of the way you were doing the best you could with the resources and the tools you had available.
To err is human. To forgive is divine.
Let’s take acceptance one step further. Because guilt, shame and remorse over our financial foibles can clutter our thinking. Potentially, even paralyzing us from taking action.
But when you forgive yourself, you let go. You put down the burden and enable yourself to move forward freely - unencumbered. You can open yourself up to change.
3. No more comparisons
Too many people come into my office and wonder aloud how everyone else is making it. “These neighbors are going on vacation, again. Those guys have a new car. And those folks have the fanciest and most fashionable clothes.”
Or at least that’s what we see from the outside looking in.
And whether they do or whether they don’t have their financial act together – it doesn’t really matter.
Focusing on them distracts you from your own unique set of financial circumstances. Use your time and your energy to make your money management the best that it can be.
4. Plan your finances
If you’re really ready to forgive your financial mistakes and move forward, then you need a plan. A plan to take you from where you are today to where you want to be financially in the future.
Start by asking yourself what your future looks like:
Do you want to get out of debt, start a financial freedom fund or build your retirement nest egg? Are you saving up for a down payment on a house?
Do you need to spend less than you earn or do you simply need to earn more?
Write down your goals and ask yourself: how much money will I need and what should I set aside each month to achieve my goals? Do I need to explore investing to grow my money? This is the beginning of your financial plan.
5. Take Action
A plan is only as good as the paper it’s written on. To get results you need to take action.
Sometimes it’s hard to get started and sometimes it’s hard to keep going, or both. Start with the tiniest baby step you can take today to get you one step closer to your goal.
Open up that financial statement that you stuffed into the drawer; call your bank to check the balance on your account; or, make an appointment with your accountant to file last year’s taxes.
If you’re really challenged you might need an accountability partner or a financial coach to hold your hand and support you in achieving your financial goals.
Regardless of where you are today, the key to sound money management is personal responsibility, having a plan, and taking action.
So let’s get going. I believe in you.
Until next week,
May 7, 2018
Join me every Wednesday on my podcast “Unlocking the Secret to Living Rich”.
If you have questions or comments you can contact me at my email firstname.lastname@example.org or find me on Facebook, Twitter or Instagram @cindybbrown777
Who is Cindy B. Brown? Cindy is a CPA, MBA, CFO, mastermind facilitator and board member of public and private companies, business consultant, entrepreneur coach and a foremost expert in the field of
business mastery. Cindy’s purpose is to motivate, educate and inspire people to live their richest life. She is the host of “Unlocking the Secret to Living Rich”.