I Like To Think About Money Management Like Baking A Cake.
You can put in a whole bunch of stuff, but if you don’t have the right ingredients, the reality is the cake won’t rise…
And managing your money is a lot like that as well. There are four mandatory, ‘Must Have’ requirements. It’s great to think about these when it comes to your finances, and ask yourself whether or not you have them.
1. Abundance Mindset
The first one is an abundance mindset, and you might be thinking, why is she starting with mindset? Mindset can be as much as 80% of success in life according to Tony Robbins, who is certainly an authority in this space. What ‘Abundance Mindset is about is that everything can be 100% right – you earn good money, you track your spending, you spend less than you earn – but as CEO of your life and your money, you’re actually bringing yourself every day to each opportunity, so if you’re not thinking positively, if you’re not thinking bigger thoughts and dreaming bigger dreams, then you can actually sabotage yourself without even knowing it.
So having an Abundance Mindset as your default is just so important. The reality is that the wealthiest people think, act and behave in a different way, and they even control their emotions very differently to the average person.
The other very interesting and powerful difference between the rich and the poor is that the poor and middle class do the work and then get paid afterwards. But the mindset of the rich is the exact opposite – they get paid first and then they deliver the product or service.
Don’t skim read this section lightly. What mindset do you carry?
2. Correct Information
The next real ‘Must Have’ requirement is correct information. I often tell this story about how I used to track everything I spent money on, and how I drove my husband batty getting him to carry around a little notepad for a year and write down absolutely every cent he spent. At the end of that year we had literally piles and piles of receipts and journals where we’d entered it all.
I’m a pretty diligent, disciplined person, and it did help us become more conscious about our spending, there’s no doubt about it. But having that information never told me how much I needed to have in my bank account today to make my future finances work. It only told me what I’d SPENT money on. And I don’t know about you, but I can’t drive a car by looking in the rear-vision mirror and never looking at the road ahead.
If you don’t know what your bank account balance needs to be today, or tomorrow, next month or next year, to cover all of your predictable and unpredictable expenses then how can you plan for the future? That’s why correct information is crucial. And I’m not just talking about generic information. I’m talking about information which is customised to your life and your goals – no-one else’s.
Here are some examples of day-to-day spending questions you will probably need answered in order to stay financially fit:
- Can I afford to buy this dress or pair of shoes today?
- Will I be able to pay all my bills this year?
- How quickly will we be able to get our home loan deposit together?
- Do I need to generate extra money to reach my goals in the fastest time, or
- Could I find money already within our budget that could do the job without any extra effort?
And you probably want to know the answers to these questions without having to juggle too many figures in your head.
Do you have a system that provides you with easily accessible and correct information like this every day?
3. A Roadmap to follow
This one follows on from point number two. The correct information needs to be laid out on an easy-to-use road map that looks into the future, not the past, and shows you where the potholes and the mountain peaks are going to be.
Even though technology is supposed to make life easier, I find that people are busier than ever, and part of the problem with traditional budgets is that they can be so time-consuming, because you have to keep reinventing the wheel each month, and they also look backwards not forwards.
Couple that with the ease of online shopping, and this really is a recipe for disaster financially. People are making impulse spending decisions left right and centre because they don’t have a clear roadmap to get them from A to B, and to help them make those daily spending decisions.
So they throw caution to the wind, spend money and just hope that it will all work out.
You may already be tracking your expenses but that’s just one aspect. That kind of information is good, but we really want something like a GPS tracker for our money, which tells us exactly where we are in the journey.
The fact is you could actually go broke even though you’ve tracked your spending to within an inch of your life… Does that sound weird? The reason is, is that if you haven’t factored in all those ‘unpredictable’ expenses, then it’s only a matter of time before you’ll get derailed by an out-of-the-blue expense despite all your best efforts at keeping tabs on what you’re spending.
So you want to make sure that you’re factoring in not only the predictable expenses, but also the unpredicatable ones (like clothing or repairs or random social events). If you’ve factored in all of those, then are you still left with actual cash in the hand? That’s just crucial.
4. Building Fences around your money
The last of our mandatory requirements for managing your money successfully is getting right bank account structure and automating your expenses, transfers and savings to protect you from your own worst enemy – YOU.
When I start working with a client, they either fall into one of two categories – Those that have one account and they try to do everything in the one account, or those that have a gazillion accounts (and most of them have these cute labels, but are never even used, or if they are they have wasted funds sitting in them which are not working as hard as they could be for their masters).
The common theme with both types of people is that neither of them have a way of keeping their money safe for it’s allocated purpose. Both are dipping into the cookie jar whenever they need and depleting their cash reserves. They’re constantly left with a feeling of sinking in quicksand.
Perhaps you’re thinking, “Why does she think that having the right accounts is a mandatory must have?” Maybe you’re doing okay at the moment – you manage to get your main bills paid on time, even though your spending habits are a bit sloppy – but how long is it going to take before you’ve chewed through all your cash reserves?
The reality is if you don’t have a system you can depend on, then your costs are going to rise and pretty soon you’ll be in hot water. And what’s going to happen over time (actually it’s already happening) is that those without a system, who are always ‘winging it’, will get poorer and poorer.
5. The ability to grow your savings
If you think about it, if you’re not getting ahead financially then you’re actually falling behind. If you’re constantly living pay-to-pay and there’s never anything left over for you, even if you are managing to pay your bills, then next year and the year after things are just going to get tougher and tougher as the cost of living rises.
So to get ahead you need to be saving and investing some of your hard earned dollars – putting your cash into something that gains in value over the years (whether that’s in property or companies through the sharemarket).
I don’t give advice to my clients about where they should be investing, that’s not my area of expertise, but if they want to get ahead then I can show them how to create the savings necessary for investing, and refer them to specialists who can help them find good vehicles for that.