In our previous blog, we introduced Sarah and her goal to start saving. During the first meeting with Sarah, she started to understand that saving is linked to money management and planning. Without a budget and goals, she likely will not succeed. She revealed some details about a friend that helped her get to this point.
Sarah’s friend always seemed to have what she needed. Sarah knew she earned a few thousand more than her per month and yet her friend still always seemed to have money. To top it off her friend has gone on two overseas trips in the last 5 years.
When asking her friend how she managed to do it, her friend’s answer challenged her thinking. In short, she said clear goals, a plan and a person who holds her accountable gives her the discipline to achieve what she wants to. This is the same friend who suggested she chat to us for further assistance.
Like many others, changing how we spend and manage money is not a natural process. If it was natural or easy we would all be earning compound interest rather than paying it. In our first meeting, Sarah took a guess at a breakdown of her expenses. Below is Sarah’s Shot in the Dark.
A Shot in the Dark
In terms of expenses, we can see that Sarah had lumped everything into 3 categories her house, car and expenses. When looking at her car expenses the amount she gave us only included the car repayment. Similarly, with her house she only took rent into account. Everything else went into expenses. When we manage our money like Sarah is there is no room to save, we never seem to have enough and we have nothing to show for our money at the end of the month. We need to have different expense and savings buckets.
Seems crazy that she was not linking insurance, electricity, fuel, maintenance etc to her car and house. Many of us make this mistake when we do mental budgeting and accounting. This could be why we end up owning cars more expensive than we can afford. If we only had to pay the monthly repayment most of us could afford the bigger or better car. The issue here is that we fail to think of the more expensive insurance, the higher maintenance costs and more fuel that comes with the bigger and better car.
Moving Towards the Light
Many people have a negative feeling towards finances because they dislike maths and numbers. If you dislike numbers maybe you also dislike having them in your bank account. There are certain things no matter our age, maturity or personality that we simply need to be doing. Money management is one of those things.
We need to understand and embrace a few things that make money management easier:
- Technology is our friend – We now have access to apps and calculators that range from beginners to expert levels
- Play to our strengths – Do what you are good at and outsource the rest. If you are not analytical get a financial planner to help you plan
- Acknowledge our weaknesses – this is the first step to changing anything, once we know our weakness we can ask for help
- KISS – Keep It Simple Stupid
"Thank goodness Money Management is more about our choices and behaviour than it is about the speed at which we can add or subtract."
Back to Sarah
The last week before payday, Sarah never has any money in her account and is left wondering where it went. A bucket for house, another for car and then everything else goes into the abyss of expenses. This abyss, vacuum or black hole is where we need to turn our attention. If we are honest many of us operate like this, it is human nature to bury our head in the sand and avoid certain things.
She is starting to see that her current way of thinking, or lack of, is not effective and leads to stress, worry and frustration. She is tired of always feeling on the back foot.
What can Sarah do to change this? We cannot magically increase her income, quite frankly even if we could magically give Sarah more money she would likely end up in the same position later. In our next instalment of Money Management, we look at ‘Living in the Light’. We explore some of the changes and steps Sarah is taking to improve her money management and how she is starting to save.
If you would like to start managing your money better or if you want to do something your future self will thank you for, contact us to arrange a meeting.
Live Trust Grow Matter