In our first blog about Sarah – Money Management ‘I Want to Start Saving’. Sarah came to us with the goal of wanting to save. To start the process we needed to look at how she managed money to ensure she could afford to save and also to look at how much she could save. We needed to explore her spending habits and money management plan, in our second blog she took ‘A Shot in the Dark’ at what her current expenses could be. She made assumptions and mistakes we all would make when we manage money in our heads. This is a type of mental accounting that easily swayed by emotions, thoughts and even our bellies, on that note never go shopping when you are hungry.
Sarah was managing her money in the dark with no real idea of where it was going. During the first meeting with Sarah, she started to understand that saving is linked to money management and planning. Sarah realised that without a plan and some goals, she is not likely to succeed and even further than that, without this plan written down and defined she would never succeed.
What steps did we take next?
Looking at Sarah’s lifestyle there were gaps in her finances. Together we took the following steps. Firstly, clearly defined her goals and outlined how to achieve them. Secondly, look at her big picture and then looked at how everything fits together. And lastly, we broke the goals down into bite sizes.
This is a strategy that is commonly used in many areas of our lives, for example, our careers, studies and even relationships, so why not in our finances? This goal-orientated behaviour is crucial for motivation, perspective, reflection and discipline.
To remember this process we use 4 P’s:
We get perspective by looking at the bigger picture. We then need to plan and strategise the way to get there. This very plan will give you purpose and motivation and having this purpose provides perseverance and the discipline to succeed
The best way forward for Sarah is two-fold. First, gain financial perspective of her current situation and then look at the needs and wants for the future. We have to plan for the short, medium and long term.
Practical Actions to Manage your Money
To clarify where your money has been going, use a 3-month bank statement to plot your expenses and spending habits. We can start to get an idea of where your money has been going. In a previous blog Money Management ‘Boxes’ we referred to a few ways in which you can plot your expense uses boxes or buckets. This helps make the numbers smaller and more meaningful and creates a visual to better see the landscape.
Right now, you can create your management plan on your own, but from our experience, people have the most success when including someone who holds them accountable and has the financial knowledge to help them.
Will I ever be happy?
Sarah realised she needed to start saying no to herself sometimes. The hardest thing about making changes is being honest with yourself. At Growmatter, to work through this process we ask the question. “Is what I am doing now going to make ‘the me’, 5 years from now, happy?” It is challenging to face questions like these but trust us it is much harder dealing with the bad decisions 5 years from now. Sarah realised she needs to start thinking of ways to make sure the future Sarah is happy.
Do we choose to live within our means or live in excess?
Where Sarah finds herself now, is usually the point of the process where things breakdown. We don’t want to deal with the change or the truth that we need to change. It is the end of the line for many people who are not ready to change. We often love the idea of something but when the takkie hits the tar, we buckle. When we are not ready for something we find very creative ways of avoiding it. We blame others, we claim it is crazy or impossible to do.
Isn’t it strange how sometimes the same action has different results based on your purpose and perspective?
What does seeking the truth and burying your head in the sand have in common? They both require digging.
Sarah is Digging for the Truth
What jumps out to you?
After we looked at Sarah’s bank statements, we put each and every expense into a few buckets. If we look at our bank statements, we can see the amounts of each expense and debit order as well as a reference of where it is going but how often do we wonder what it was for? This is the Vacuum.
For Sarah, this vacuum is a combination of expenses she either couldn’t remember paying for or things she paid for that in hindsight she felt were not necessary. The vacuum for Sarah equates to 30% of her spending that is more than R7 000 per month on average, over a whole year this could be over R80 000. Seeing this was probably one of the most powerful moments for Sarah.
At this point, we warned Sarah of becoming a soldier in survival mode while she zealously tries to save. Forcing our lifestyles into these super restrictive “only water and beans” survival modes is unbalanced and will trip us up sooner or later. These extreme responses are more common than you think when we experience or learn something life-changing however we need to find a balance.
Have you ever made the decision to get fit or do a crash diet, you go out and buy running shoes or exercise equipment and on your first day, you push yourself like Arnie Schwarzenegger. The next day you are so sore, blistered and resentful that you never touch those weights again. Maybe this example is a bit extreme, maybe your story was a week or a month of exercise before the wheels fell off, either way, most of us have similar stories.
Managing our money is a way of life, your plan needs to be sustainable. Sarah cannot simply cut out everything and start saving R7000pm. Sarah has some more work to do and we are going to help her plan for her. We now need to holitiscally look at the goals and needs we drew up. Her short, medium and long term goals all need to be taken into account. We have the knowledge and expertise to consider the costs and the pros and cons of the options Sarah has.
In our next blog, we will reveal some of the changes we implemented and how this process of Money Management has changed her life.
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