One of the things I’ve been focused on this year is money. As a thirty-three year old, grown business woman, I am paying attention to my money for the first time in my life. Before this year, the thought of a budget made me cringe. I could seldom tell you how much money I actually had on hand at any given time, and I felt truly incompetent when it came to business finance or even simple investing strategies. I very much so lived in a “fake it til you make it” world. Which, if you ask me how I’ve succeeded in life/business, that’s a strategy I’ll often pass on. Get started and figure it out as you go.
I’ve been taking care of myself for an eternity and been in business for myself for over 10 years. When it came to money though, I resisted really learning how to manage it because it felt too overwhelming for me. Not to mention, no one ever talks about money except full-on financial experts and their financial jargon was too much for me. I needed to hear the basics — the everyday, regular-folk type stuff that no one wants to discuss. I truly feel like if average people talked more openly about money and what to do/not do with it, I wouldn’t be thirty-three and just diving in. So…here I am putting some of my own business out there and sharing what I’ve learned, in hopes that it’ll encourage someone else to get serious about their finances.
After going through a tough season financially, I decided enough was enough and it was time that I actually get a grip on my money. What started as a necessity of needing to know where every penny was going, grew into a love of holding my money accountable. I initially had to get serious about it because I had no other choice and along the way, I grew to love it! I’ve gotten comfortable with my business quickbooks, practiced with spreadsheets, taken money courses online, listened to podcasts, and read books. I have plans and goals pertaining to money and for the first time in my life I can tell you EXACTLY — to the penny — how much money I have right now. (And not just by looking at my online balance and quickly deducting an estimate of the money I happen to remember having sent out.) So basically — I’m a grown up.
This year, I’ve learned SO MANY tricks that have helped me. Most are simple things that anyone could do or just different ways of looking at things you do every day. While I’m certainly not a financial advisor, I thought I could share a few things I’ve picked up this year and it might help those of you who are like me, and don’t even know where to start. I’m talking the bare bones basics here. Like tips for toddlers. I’m sharing these things because I feel like if someone would have given me some super simple things to start with, I might not have waited 10 years to start taking money seriously.
- Transfer 10% off the top immediately. This is not a new concept. If you’re anything like me, you’ve felt like there wasn’t enough money at hand to transfer 10%. If this is indeed the case, your first step should be to reduce expenses. I did this in December. I cut both my business and personal expenses tremendously. The only “frivolous” item I kept was Netflix, because I’m not a savage! Trim the fat until you have enough breathing room to transfer 10% to savings. Once savings is built up, you’ll be able to start investing. The ONLY way you’ll ever be able to do either (save or invest) is by getting in the habit or taking money straight off the top before you do anything else. For years, I did this backwards. I waited to save until all bills and such were paid. And guess what — there’s never money left when you do it that way. Your first baby step in getting to financial freedom is to get to a place where transferring at least 10% off the top is second nature. You must do it immediately.
If you’re in business for yourself like I am, you should take this a bit further. When the business brings in money, you should transfer 10% to business savings and plan for owner’s profit too. For the sake of simplicity, let’s say you transfer 10% to business savings and 10% as owner’s profit. Most business owners wait until the end of the year and try to pay themselves a bonus on what profit is left. Business owners, raise your hand if this strategy has worked consistently. I’m willing to bet that it has not. I’ve been in business for myself for 10 years. I’ve never paid myself more than a few hundred dollars when operating this way, and I’ve done nothing consistently. It will most definitely feel awkward at first and yet mark my word — you will never, ever build personal wealth by waiting until the end to take your profit. When you leave the profit in your operating account, it will be spent. Every time. This book is a great resource on this topic and will tell you exactly how to set this system up.
- When you decide against buying that thing or getting that $5 coffee, transfer that money you would have spent immediately. We all do this. We’re about to buy that new shirt and then hang it back on the rack. We’re going to run through the drive through and then decide to just make something at home instead. When we do this, we’ve spent the money in our heads already. When we use our better judgement, we’ve recovered that money! Rather than leaving that $5 or $20 in our account, transfer it immediately. The money class I took suggested you transfer it to an investment account. For now, let’s just transfer it to savings. After all, you were just about to spend it. Whatever you do, do not leave it in your regular account. When you make the decision to not spend, transfer that amount, no matter how big or small, to your savings account. You will be surprised how quickly those small amounts add up to something substantial. The trick is to pull out your phone and transfer it from your phone immediately, right there in the middle of Target. This strategy does not work if you wait and do it later.
Here’s an example of this from my personal life. I hired a house cleaner this year and she was on vacation in May. I usually pay her on Wednesdays. While she was away, I transferred what I would have paid her on Wednesday to my savings account. Had she been here, I would have paid her. Leaving that money in my checking account to be spent on frivolous things does not help me increase my wealth or get to financial freedom. Transferring that saved money into savings will.
- Create a “purge week” for food at your house. Let’s get real. We’d all prefer to run through Chickfila instead of cooking at home. However, most of us have plenty of food at home to eat. This strategy has probably been the toughest for me to implement since I don’t particularly enjoy cooking. Rather than counting on yourself to make the smart decision to go home and eat, this strategy suggests creating a “purge week.” It’s almost like a game. You designate a week of the month to create meals out of what you already have at home. This is when you empty out the freezer. You thaw those things you put up months ago. You finally work through those 10 boxes of spaghetti. You use up the stash of canned goods you’ve somehow stored away in the pantry. The entire purpose here is to save on groceries and eating out, while also reducing the amount of food we waste by letting it go bad in our fridge and pantries. You don’t go buy $100 worth of groceries for this. The purpose is to eat what you already have. Keep in mind that it’s not requiring us to eat at home all month long. It’s just one week of finishing off what you already have. That’s much more doable it seems. Besides, the money you save could be transferred to savings! See tip No.2.
- Build an emergency fund, then pay off debts. All sorts of statistics show that the vast majority of people do not have money put back to handle a standard $1,000 emergency. Most people will be put in a bind by an unexpected trip to the ER or an AC quitting on them. This is because we don’t have emergency funds in place. All financial folks will tell you to build yourself an emergency fund ASAP. This fund can be anywhere from 3-6 months worth of your income to as little as $1,000. At the bare minimum, you need to stock away $1,000 in a separate account from your regular spending account. If you don’t have this, start there. Get to $1,000 as quickly as possible! (Note: A new pair of shoes on the biggest sale ever is NOT an emergency. This money is for when bad things happen. That’s it.)
What tends to happen for those of us who didn’t have any money to start with, is that we’ll build that emergency fund and then keep adding to it (which is great). Once we form a habit of saving, it’s hard for us to part with that money. We’ll add and build up a savings account while having debts that are unpaid. What I’ve learned recently is that if you have any cash on hand sitting in accounts, you should use that money to pay off your debts, especially credit cards and such that carry higher interest rates. Save out your emergency fund and then use anything in excess of that to pay off debts. If you leave that cash sitting in traditional savings accounts, it’s gaining very little interest. There’s comfort in knowing it’s there, and yet it’s not making you very much money in return. On the flip side, you’re wasting A TON of money on interest for consumer debts like credit cards and even some car loans. It’s not uncommon for these balances to carry 15-25% interest. Once you’ve accumulated money that’s in excess of your emergency fund, use that money to pay off debt. Once you have debts cleared, you can begin rebuilding those accounts. The short story of this tip is that if you have cash saved that could pay off a debt, PAY IT OFF!
- Always save or invest “found money.” Found money is any sort of money that you received that you were not expecting or counting as regular income. This is when you get that deposit back from the utility company or get an unexpected bonus as work. “Found money” can be when that old friend finally paid you back, your tax refund, or a monetary birthday gift. We tend to spend these little extra bonuses and yet it can make a huge impact if you always save or invest those dollars instead. This is similar to tip No.2 where you tuck away money that you were about to spend and didn’t. An example of this for me was a refund from a doctor’s office I received in the mail. Rather than depositing that into my checking account to be spent on more Chickfila, I deposited it directly into my savings account. It’s “found money.” I wasn’t expecting it or counting on it to pay the bills. Rather than use it as an excuse to buy something frivolous, I tucked it away. When you do this every time you find unexpected money, you’ll be amazed at how quickly you can build something substantial.
One thing I should note about these tips is that I reference saving the money more than I do investing it. Saving alone will not make any of us wealthy. Saving is intended to protect us in case of emergencies or unexpected change. You will not be able to save your way to a comfortable retirement. However, as I mentioned before, most of us don’t even have an emergency fund. You can’t make wise investing decisions without first getting comfortable with the idea of spending less and saving more. When I look at my financial trajectory so far, I was so scared and so ignorant to all of this that I did nothing. I didn’t know what the “most right” thing to do was so I pretended that ignorance was bliss and did nothing. I didn’t know how and where to invest, so I didn’t even bother saving. I understand that was a foolish move and I’m being honest with you all about it here because I feel pretty confident that I’m not the only one. You don’t have to raise your hands. I know you’re feeling me on this.
It’s taken me 10+ years to get serious about this stuff. It’s taken hitting some seriously hard times to admit that, even though I’d been successful in business, I wasn’t financially secure. I could navigate a few bumps in the road and yet I couldn’t handle any serious setbacks. I am publishing this entire post for those of you who are like me — smart folks who just need someone to point them in the right direction. My hope is that these ideas can be a stepping stone for someone to start making a difference in their future, without having to crash and burn to learn like I did.
So here are my self-educated, non-financial background tips in a 4 Step Plan:
- Save an emergency fund. Get you some money put up so you can CYA when something happens. Something is coming your way. It always does!
- Save, save, save! Put away money like you can’t make anymore of it. It takes a looong time to get in the habit of saving more than spending and once you do, your life is changed. It’s like working out. (I assume. I haven’t been to the gym in years until last week.) You have to build the habit. Then you’re golden.
- Once you have you a little baby nest egg built up, start throwing that money at debt. Pay off everything outside of your mortgage! When debts are paid off, you have more flexibility in your budget to save/invest. Don’t keep large amounts of cash in accounts while carrying debt. Save your emergency fund and use everything else to clear those debts.
- Next, you can start investing.
Save your emergency fund. Save as much as you can as quickly as possible. Pay off debts. THEN, you’ll be ready to learn about investing. If you’re anything like me, you gotta break this stuff down into little baby steps. I CANNOT think about where/how/when to invest when I don’t even know how to spend less than I make yet. I’m sharing these “tips” in real time so if you want to join me on this money journey, go ahead and get started! If you start now, we’ll be figuring this stuff out together as we go! Be sure you’ve signed up for my email newsletter because I’ve been sharing resources here and there as I discover them.
They say that the best time to plant a tree was 20 years ago and the second best time is today. I urge you to do one tiny step TODAY in working towards your financial future. Starting today is better than tomorrow. Starting SOMEWHERE is better than nowhere. I have amazed myself at how much I’ve learned and gotten done in just 8 months. I wouldn’t be where I am today (debt free!!) without having started somewhere back in January. For those of you who are still overwhelmed, pick one or two of these things and just do them. Getting comfortable with one idea will give you the courage to try another and another. Before long, you’ll be in a tremendously better place financially and you’ll be so glad that you finally started. Believe me.