Personal Finance - Your Relationship with Money - Part 1
Are you living paycheck to paycheck?
Are you earning an income and seeing life pass you by without a dent in your bank account?
Will you and your family be financially devasted if you lose your job today?
Do you ignore the topic of money or money problems altogether?
Are you on track to your retirement?
Do you feel guilty when spending money on things you love?
Then this may be the blog for YOU.
A quick disclaimer. I am no “financial guru” who will make you rich. I am far from it. This is also not a “get rich quick scheme”. However, over the past few years, I have consumed extensive personal finance videos and read best sellers on the topic of personal finance that have opened my eyes to how uneducated the everyday “salaryman” is. After implementing these learnings in my own life, I have seen extraordinary results and I want to share this with anyone slightly interested in improving their relationship with money. This blog is to help you fill the gaps in your finance journey as well as share some tools and resources to get you to your realistic goals. This blog is for educational purposes only. This content holds no liability for any damages done. Please do your research or seek professional advice where applicable to you.
Assumptions
You have income flowing in every month whether you are an individual or a business.
No one is crazy.
Everyone is different and we have no right to judge anyone for their choices. You might look at your neighbor who bought a new 4x4 Truck but can’t afford to pay his rent. Someone spends thousands at the casino but has mountains of unpaid debt. Another has millions in the account but is afraid of spending on a small vacation. And finally, a six-figure earner or family still living paycheck to paycheck. For most of our discussions forward, you will need to look deep into yourself as to why you make certain decisions and try not to pass judgment on your past spending habits. Our environments have molded us into who we are and we cannot change these habits until we understand them and we cannot thoroughly understand them until we wholeheartedly analyze them without judgment. Be honest and be kind to your past self.
What does a “Rich Life” mean to you?
Does it mean a six-figure salary? Or a seven-figure net worth? maybe it means being surrounded by friends and family? The thing is, everyone is different when it comes to their goals and everyone is different regarding their background with money. This means my Rich Life is completely different from yours but we can all agree that a certain level of wealth will be required to live your rich life. For example, person A loves buying clothes, shoes, and expensive jewelry but isn’t a fan of eating out or going to the movies whereas, person B loves the convenience of restaurant food but couldn’t give a rat’s ass about buying jewelry. But life isn’t always that black and white. We end up spending frequently on things that aren’t bringing us joy and moving forward you may still end up doing it. The trick to accomplishing most goals isn’t perfectly adhering to certain rules, it's to be able to action it and action it at least 70% to 80 % of the time. However as mentioned, you need to be true to yourself when these events occur.
Your journey starts here. Get out a pen and paper or get this My Rich Life Template and jot down what a rich life means to you. If you have a partner then you most certainly should involve them and get them to write their list. Create 2 columns and on the left write what your rich life is and what you want to spend money on, and on the right, list down all the things that don’t bring you happiness and you want to spend little on. This list of items needs to be specific. eg. Go on vacation once a year with a budget of $8,000 or be able to buy a round of drinks for your friends or not spend on expensive cars and housing.
Once this has been done, sit and analyze what this “Rich Life” list means to you. Is it your Rich Life or someone else's? Are you trying to improve your life or making decisions to live someone else’s rich life? Now, are you motivated to make the change needed in your life to achieve these Rich Life goals? If you are, then let’s move on to the next section. If you’re not motivated then go over your list again or ask yourself why you started reading this beautiful blog in the 1st place.
Note: Your Rich Life list will also come in handy when setting goals.
Impossible best move.
You are in an impossible rut. The best move, pay yourself first. Until you inch into a more comfortable place financially. 5% to 10% of your net income works but push further if you can. Net Income = Gross Income - (Taxes + Contributions)
This fund should be your emergency fund. And yes, $200 IS a reasonable starting fund.
For most people running the rat race, you are on loans, low savings rates, and high expenditures where you either break even on your net worth or run in the negative. At this stage, you need to build an emergency fund to shield you from unexpected emergencies like car repair, small injuries, bailouts, unplanned expenses, and maybe the impending doom of missing your rent or loan payments. You aren't stuck because life hits you down every day rather, it’s the random situations that throw people off their stability. And these instabilities are what drag you back on the hedonic treadmill. Ideally, most books and authors recommend 3 to 6 months of funds in a high-interest savings account with easy liquidity. Make this a little hard to access but reachable when the need arises. As of Feb 2024, no bank in Fiji offers any reasonably high-interest accounts. If they are then caveats follow. Alternately, several people use low to no-risk unit trust accounts. Unit Trust of Fiji (UTOF) as of Feb 2024 offers such an account called an Income Fund that generates close to a 2.75% interest rate on a semi-yearly basis. At this time not even fixed deposits can share this rate.
Banks in Australia and the US are at this time are offering “High Yield Savings Accounts” that yield upwards of 5%.
Note: Your emergency fund is strictly that. It’s for emergencies only. Things that do not count as emergencies: A sale at Prouds or Tappoos, the latest game or music album release, or your Netflix subscription nearing expiry.
Once you have met your emergency fund goal, this account can now easily accommodate your short to medium-term savings at the same or better percentage.
Now that we have addressed this, let me take you slowly through the other stages.
I am not my expenses.
I am sorry if you thought that we wouldn’t talk about expense trackers and spreadsheets. You were wrong.
As cringe as it may sound, you need to be able to track your expenses so that you can identify what it costs for your family to exist in a month. This step helps to identify what your emergency fund size should be.
When you go through this process of tracking every dollar of your expenses, you will go through a range of emotions. I need you to keep these at bay. As the heading suggests, you are not your expenses. But until you understand where you are, you will find it difficult to know where you are going. Try it for a month, get a tracking app, start a spreadsheet, or get our Monthly or Yearly Expense Tracker Templates, but start tracking diligently and honestly. If you have a partner with combined finances, this can be even harder. At this time focus on the bigger picture of tackling personal finance instead of tackling each other. You leave judgments at the door and get to growing in life, together.
This tracker needs to be able to classify your spending. Starting with 5 categories is enough but others may choose 10. However, try your best to keep this simple without hitting 20+ categories. I am looking at you fellow spreadsheet warriors.
Next, once you've done this for at least 2 months, you will have a fair idea of the size of your emergency fund. The fund should be able to cover your monthly fixed costs and typically exclude investing and sometimes savings. Remember, the bare minimum is to keep “the lights on”.
If you think Part 1 was informational then the next parts will be a real eye-opener. Click below to continue to Part 2 discussing Fixed Costs, Investing, Compound Interest, and Debt/Loans.
Personal Finance - Your Relationship with Money - Part 2
Thank You for reading!
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