As we settle into 2015, many of us will pause and reflect on the prior year and look for ways to improve ourselves. Often we focus on our health: “I will eat healthier”, “I will stop drinking so much”, “I will go to the gym more regularly”, etc., etc. Many of us will go so far as to do a cleanse to help rid the body of toxins; though not a cure-all, it helps re-set our diets towards a pathway for a healthier lifestyle. In addition to health related resolutions, we have found that more people will Google “get out of debt” the first week of the year than any other week in the year.
Just like a physical cleanse, a financial cleanse helps to re-set and break habits and get out of debt! Instead of reshaping your body, a financial cleanse helps to reshape your spending and savings habits towards a pathway for a more secure financial future. The following 5 steps can help you stop “living rich but feeling broke” and instead provide clarity and insight into your spending and savings patterns and put you back in control of your future.
First, and in my opinion, most important you must change your mindset. You are no longer a consumer, you are a producer. Repeat that again; let it sink in. You are a saver, not a spender – a generator of wealth. Think about why you want financial security? Freedom, peace of mind, for your family?
When you shift your mindset about your place in the consumer chain, you begin to measure everything against your value system, your “why”, and you will get angry when you over spend. Flip from get money, spend money to get money, save money. Start with an emergency fund.
Second, treat your household like a business. Many of you reading this article either own or previously owned a business or have worked in an environment where you were responsible for managing to a bottom line. Treat you household spending as the business of You Inc. We create a Personal Balance Sheet for every client we work with; it is intended to be comparable to a business income statement. Start by creating a spending budget for your household.
Next, four numbers you should know: monthly income, monthly expenses, how much you can save each month while paying down debt, without incurring additional debt, and your personal net worth. This is your starting point. With these numbers you can manage your monthly cash flow and begin to save more. Start by tracking your monthly cash flow, this will provide clarity around your spending habits and patterns.
Fourth, track your progress: the greatest motivator is seeing progress. Plug in your numbers and understand where your dollars are going, and what is left to save. Become accountable for your spending habits. Start by using free online software to track your progress. Mint.com is a good one.
Lastly, make your spending count. At this point you have determined your “why”, incorporated your household, understand your spending habits, and are ready to make a change— so when you spend make it count! Before you buy ask yourself: What is my long-term gain from this? What is my ROI? If putting it on a credit card, am I stealing from the future to pay for the past? You can and should indulge here and there, but it should be done within a plan and for the right reasons.
Spend your time and energy on things that really matter to you…keeping up with the Joneses is superficial—and honestly, the Joneses may be living paycheck to paycheck…they may be portraying an image they can’t afford…be true to who you are and what inspires you…and here’s to a prosperous and fulfilling 2015!
Stephanie Mackara is a Wealth Advisor at Charleston Investment Advisors. Charleston Investment Advisors is part of The Wealth Management Alliance LLC, a registered investment adviser. Though the contents of this article should not be construed as investment advice, feel free to reach out to Stephanie Mackara directly at firstname.lastname@example.org directly to discuss your specific financial situation.