Improving Your Financial Health – Step 1
Before I really start, I would like to introduce myself. My name is Mark, I’m originally from the United Kingdom, but now living in Florida. I’m husband, to my wonderful wife Margie and the father of 4 great kids, all teenagers, and yes I still say great! I’m an engaged father, that has worked hard on taking a very different approach to the way our whole family budgets. The transformation has left me with the passion to share this approach with as many people as I am able. I find helping others gain a healthy control over their financial lives to be fulfilling and rewarding.
“Financial Health” or “Financial Health Check” is a phrase that I’ve heard and read about many times, along with “financial freedom”. Both of which are usually associated with the balance of your bank account and having large amounts of money available, with which to purchase what we want and believe will give us a sense of being “free”.
I have a different view these days, and I’m really passionate about it. That’s whats made me want to tackle this as my first article in this series on our site. I can’t emphasize enough how much of a “life changer” it has been. For Margie and I it was a total revelation, but to be able to influence the financial health of our 4 teenage children, (at the time of writing this, they range from 17-19 years old) gives us even more joy. We started introducing them to our approach from the ages of about 14 upwards, ideally I think 10-12 would have been even better. Having our children be able to begin their financial life this way has given them the head start that I could only dream of.
The words budget or budgeting, what do they mean to you? For me, it used to bring up feelings of restriction and fear. Fear of not being able to afford to live how i wanted, and that restriction would have to be put in place and I would miss out on things I wanted to do.
My view has been transformed over the last 10 years. The approach we now have as a family, and that has me so excited, has taught me something very different. There can be a different mindset to budgeting and financial analysis. I no longer have fear of my finances, or confusion over what I can and cannot afford, or guilt over spending money on myself or my family.
What does financial health or freedom mean to me now?
Here’s some phrases that help to define my thoughts on the subject, each one will spawn a separate article in the near future, but provides a taste of what it means to me.
Full awareness – (of my Financial Position)
The ability to be open and honest – (with my family)
To have choice – (where we spend our money)
Ability to handle “surprises”
Guilt Free Spending
Can you imagine, knowing what money you have; the purpose it has, not adding to your debt, having money for when things just hit you out of the blue? If that sounds like something you would like, read on…
Step 1 – Full Awareness
This is the 1st key concept and although it’s a very simple one, it’s actually probably the hardest to achieve. It requires an open mind and complete honesty, something that is very useful for when we get into the the subject surrounding the second phrase on my list above.
Many of us live our lives wanting to believe that we are in a place different from our reality. We crave distraction and diversion from our day to day lives. This is no different when it comes to financial planning help, wanting to project the financial image we want, rather that the reality.
The first real step to financial health requires us to take a real, open and honest look at the truth about our monetary position or a financial health check.
1. What money do I/we have coming in ?
2. Where is my/our money going ?
These are two questions we have all been faced with many times and are, on the surface, pretty simple.
Usually people have a fairly good idea of how much money is coming in, although depending on your income stream, it will need some level of exploration.
For now, we’ll let that one slide by, and tackle the second one, the one that is not so easy to answer….
Where does it all go ?
When most people budget or think of budgeting, they consider the “big ticket” items, mortgage/rent payments, car loan payments, utility bills, insurance payments etc. These are vital starting points to any budget and are the things that give us a base sense of security. If we can’t afford those, we all struggle with our sense of freedom. Its the other section of our outgoings that I’m most concerned within this article.
What tends to happen, once the critical items are ticked off as having been accounted for in the budget, is that any money “left over” is considered disposable income. Its the disposable income that’s the key, this is the thing people miss when talking about budgeting. I refer to this as “Stealth” spending.
What is “Stealth” Spending ?
Let’s “grab a coffee”. A significant proportion of us have membership/loyalty cards, membership cards that are auto refilled from our bank accounts, bypassing almost any conscious thought of the amount we are spending. Even if you don’t have a membership card, the principle still stands. Many of us will spend on a regular basis, with the “its only a couple of bucks” mentality, or just through unconscious habit that damages our financial health.
The question is, how much will we spend at our favorite coffee house each week or month, and what does that mean for a whole year ?
Lets run the figures…
If a cup of coffee is around $4.00, and we go 3 times a week consistently throughout the year, that’s
$12 a week (doesn’t sound too bad)
$52 per month (still not that bad?)
$624 per year (Ah!)
and that is just one spend category. Imagine another 10 categories, all spending something similar.
Over $6,000 per year, and the truth is usually much much more than that. Stacks up fast doesn’t it ?
This is “stealth spending”, I love the phrase. It represents all the things we spend money on, that we don’t think about when considering our outgoings. In many cases, its more that we don’t want to think about it, or to budget for it, as there is uncomfortable feeling of restriction when budget or financial analysis is mentioned. In some cases we may not consider that a budget is required, or even be conscious that a spending category or habit exists.
Understanding un-mapped spending is the 1st key focus for our financial health program. It does take work, similar to that first work out at the gym. Like working out, when you have a picture or goal you want to achieve, it can become more and more rewarding with every step.
The goal of understanding the balance of income & expense, in our program, is NOT to say you shouldn’t/can’t spend your money on what you want. It is abolutely about giving you the power to CHOOSE where to spend your money, how you want your money to work for you, and to reduce the fear around budgeting.
Whether your are single, in a relationship or have a family, you can make a difference to your financial health and reduce stress. It can start now, and really is all just choice.