There are so many pieces to thriving well – health, relationships and finances. The tools I want to focus on now are the money tools.
I was looking at my budget the other day and comparing it to last year at this time. I’m spending more on certain things like food, utilities and credit card interest and a little less on gasoline. I know I can manage well and thrive, because I have the tools.
What?! You don’t spend time look at your budget? I’m stunned – just kidding!! Many people are uncomfortable with money tools because they haven’t been taught how to use them.
Use the Right Tools
We need the right tools at the right time to help us make good decisions. What are those money tools? Don’t be put off by the list – I don’t use them all at the same time, but many of them work better together. The tools I’m talking about are:
- Daily logging of your expenditures – provides great insight into what you are spending and helps with information for the other tools. You can do this occasionally to get a good picture of your spending or do it all the time to stay within your income.
- Budget – an overall guide, usually prepared for a monthly period. This includes what you have committed yourself to financially such as: Housing, food, transportation, clothing, entertainment, savings, credit card payments, etc. and what you have available to spend. Sometimes seeing things in black and white is a good thing, especially if you are focused on saving for the future.
- Cash Flow – this is like a budget, except it is usually for a longer time frame than a month. It gives you the picture of what periodic (such as quarterly or annually) financial commitments will require funding.This tool gives you a picture of what to expect. It minimizes looking at your bank account and SURPRISE, your bank balance is significantly less than expected!Not all surprises are bad, some are great and add value to our lives.A cash flow picture is especially good for business owners; but also helpful, for your personal use. You want to minimize the unexpected and maximize saving for investments for retirement.
- Savings – the money you pay yourself first for either a rainy day, unexpected expense, such as a car or house repair; or that you set aside to invest. Some say savings are what’s left after the bills, I say, you pay yourself first, even if it is $10 a week or a $100 a month.If you don’t make savings a priority, it rarely happens.
- Investments – These are financial instruments such as CDs, stocks, bonds, mutual funds, IRA (Investment Retirement Account) or 401(k), etc. Things you put, or invest, the money you saved or large sums of money you receive, such as inheritances or bonuses.These are the type of items which you expect to grow for your future house, travel or retirement. Ideally, they will grow over time as a result of either an increase in value or the interest or dividends that you are paid. It could be something as simple as a 401(k), an IRA where you save for retirement.While I won’t discuss the pros and cons of the different types of financial investments as it is beyond the scope of this newsletter but some financial investments are riskier than others and you could lose money. Unless you understand the financial instrument and its related risk, it is best to avoid it.Others are “safer” like a savings account with a fixed interest rate. However, in times of high inflation your buying power may decline over time as prices increase.
Whether you use all of these or none of these is at your discretion, but knowledge is power. In the case of the more risky instruments (something other than a savings account), it is advisable to work with a knowledgeable professional such as a Financial Advisor.
Mastery Takes Practice
I have used all of these tools at one time or another, not necessarily at the same time. They take some practice to master and can feel overwhelming to start; but if you never start, you will never get to a destination of financial freedom. These principles will help you manage the bumps in the road financially and they can be handy to minimize surprises.
Until the next time – lighten up and have some fun!
P.S. You can get my book Everything I Learned About Life I Learned on Vacation here.