The key to improving Your Financial Health – Step 3

As promised, here’s the next instalment in my guide to achieving Financial Health.  If you haven’t done so already, I highly recommend reading the previous 2 steps, before you continue with this article.

Improving Your Financial Health – Step 1

Improving Your Financial Health – Step 2


Improving Your Financial Health – Step 3

To have choice

In “Step 1″ I mentioned a number of phrases that encapsulate what “Financial Health” or “Freedom” meant to me, I have included them below.

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

In this post, we are looking at the 3rd phrase, To Have Choice – (where we spend our money)

Grasping this idea, is one of the most single most freeing things you can do for yourself and your financial health situation.  Take your “choice” back when it comes to finances & spending.

I have personally found it invaluable and see the amazing effect it has on others, as they get to grips with the concept and implement it over time.  The truth is, you can have most anything you want, but consciously knowing what you REALLY want is key.  The choices you then make come from a more balanced place.

Let’s face it, it is rare, unless you are in the top 1-5% financially, that you can have everything!  Having to make choices is inevitable, what I want to be sure of is that we FEEL we really have a choice.  That’s the freedom side. Having choice is aligned very closely to peoples idea of happiness, for many it’s seen as rite! Often, particularly with financial decisions, we feel bound to take a particular path.  We feel there is no choice!

Some things we want are pure fantasy right ?  Some things are a necessity, I HAVE to have it/do it/spend it.  NO! I want to share with you an example from my own life.  One which shaped a number of decisions I’ve made since, and not just in my financial health planning.

Say hello to your inner child

Children's financial health
Start financial health checks at a young age

I’ll talk about my “inner child” here.  It’s a concept a number of people are familiar with, in this case it’s that little part of you that says “I want xxxxxx“.  I’d always tried to quiet that voice, to shut it up or ignore it, saying, “you can’t have that!”, “don’t be ridiculous!”, “how can we afford that!” etc etc etc.  What I found was that voice just got stronger, “I really want xxxxxx” or “I’ve just got to have xxxxxx“, and on and on, the cycle went.  I would feel dissatisfied, I never had enough, life wasn’t “fair”.  Any of this sound familiar ?  The more I tried to push that voice down the more I would want to do whatever “it” was, and the more dissatisfied I became.  I had to break the cycle.

When it happened for me, it was a revelation, and I’ve been grateful for it every since.  The concept was introduced to me by my Guru, in the UK, about 8 or so years ago.  I kept saying “I really want an Aston Martin DB9”,  I had pictures of it on my computer wallpaper, I knew the stats, I was even upset when I heard they TRASHED 6 or so of them making the remake of the Bond film – Casino Royale.  They could have given me just one of them!  Although I had this dream, it didn’t make me happy, I didn’t believe I would really ever be able to get it.  I DIDN’T HAVE THE CHOICE.

My guru challenged me to fully accept the desires my inner child had.  To “work with it” to help it FULLY investigate the actuality of having an Aston Martin.  I was uncomfortable with this approach at first, but I went with it.  I truly looked into what it would take to have one.  What would it cost, insurance, purchase, lease costs, fuel, maintenance etc.  I got quite excited, I was taking this seriously and you know, it turned out I COULD have an Aston Martin. It did come with some choices. However, even before making any decisions, I noticed something…

My desire to have an Aston Martin had diminished significantly

The more of a possibility it became, the less strongly I felt about getting one.  To this day, I still like the idea of owning the prestigious Aston, but I am totally at peace with whether I have one, or not.  In fact, I would go as far as to say I rarely think about getting one.

Now I had a choice… I could actively choose one thing over another.  Once I was fully aware of all the facts, the need diminished, I could make a decision I would be at peace with.

The other thing that happened at the time, was I realized I no longer resented the things I felt were holding me back.  I was no longer trapped by the life I had, by the restrictions I had felt were placed on me.  It became clear, although I could have had the car, I would have to sell the house & live in the car. The house was our family home, I love my family, therefore (and this is important) as my desire had subsided, I could fully understand and enjoy the life I already had. No resentment, with full ownership for the choices I made.

financial health is freedomI have reminded myself about this example many times in my life, and eventually it becomes an ingrained attitude.  Your car is off the road, you feel like you have no choice but to spend all this money to get it fixed. Do you feel angry? “NOW I have to spend $$$$ getting this car fixed.”  Truth is you don’t.  You can not get the car fixed! You can walk, take public transport, ask friends for a ride.  But you want the convenience of driving yourself… so now you WANT to get the car fixed.  There is a huge difference, a difference in how you feel.

The multi pot budgeting approach, then helps further with this concept.  You put money away for things you need/want and are a priority for you.  Then when they happen, you have ALREADY made the choice to spend the money, after all, you saved specifically for this situation.  Even less stress.

In summary

  1. You always have choice, you just have to be at peace with the outcome
  2. Always pay attention to your inner child, ignore it at your peril
  3. My Multi pot budget approach is built on choice, on understanding what is important to you & then working to provide it

Types of Budgeting: The Multi-Pot Approach

Forget Other complex Types of Budgeting and keep it simple

I mentioned on Facebook, that I would put together a post on my Multi-pot Budgeting approach, so here it is.

This approach is one of the cornerstones of the budgeting system I have put in place for myself, my family and others over the last 7-8 years.  It requires a some thought, some discipline and is how I ensure I have money for when non-monthly bills hit.

Some groundwork

Budgeting 1-0-1

Budgeting is pretty standard and straight forward right ?  It’s a well known approach.

  1. Know what you have (see my post on Improving Your Financial Health – Step 1)
  2. Know what you need
  3. Allocate a weekly/monthly amount for those category,
  4. Either save it until you need it, or spend it if its in the “living expenses” budget
  5. Stick to your budget!

piggy-bank-Types of budgetingI like to split budgeting into 2 different types.

The first budget type, is the standard monthly “living expenses”, stuff that you KNOW you will spend every month. Gas, Groceries, Utility Bills, Snacks, Drinks, Eating out etc.   This takes up a large chunk of most incomes.

The second budget type, my “budget pots” are the items you need to budget for on a 2 to 12 month or longer basis.  Categories that don’t come up each month.  Some will have known dates/intervals, others will occur randomly depending on other factors, but you know they will happen.  For example, car maintenance, household repairs/maintenance, education etc.

The latter, is the area that you can more easily implement the multi-pot approach.  It’s the budget type that I will focus on here for my examples.  It can be applied to “living expenses” but not as easily.

Lets get started….

We’ll use an example to take us through the key principles.  We’ll just use 3 budget categories for illustration…

  1. Car Maintenance
  2. Household Maintenance
  3. Birthdays/Gifts

I will also use easy numbers for the budget, so the actual values are unlikely to be realistic for your budgetary needs.

We’ll begin by looking at each category, how much we need for a year, and how much we need to put into the pots each month to achieve that goal.

Annual Budget
Multipot-1-Types of budgeting

For our purposes, lets say that we have an account that has a Zero balance to begin with.

On month 1, we deposit our monthly budget amount of $225.00, the same on month 2, 3 etc

That money builds up, and after month 3 we have a total in our account of $675 and it keeps going up (provided we don’t need to spend it).

Rolling Budget Totals
Multipot-2 copy-Types of budgeting
Nothing new about that, so what am going on about ?

My big focus on budgeting is reducing stress, for better health.  Having money allocated, knowing what its for is all part of reducing that stress, as is how to spend it and the mentality around doing that.

Time for some expense

Types of budgetingWhat happens when you need to spend money on one of the categories… back to our example.

We get to month 2 (we have $450 in our account), and we have a leak in the bathroom.  Plumbers are expensive, but it’s got to be fixed.

  • Plumber comes and goes, leak fixed but we had a $300 bill.
  • Good news, we have a household maintenance budget.
  • Bad news, the home maintenance budget pot only has $150 in it
  • Good new, overall we have $450 in the budget account, so at least we can pay the plumber

Now we have paid the plumber, lets take a look at our budget “sheet”…

Post Plumbing Payment Budget Sheet
Multipot-3 copy-Types of budgeting

In the table above, our household maintenance, shows as $150 over budget. Overall the total of our budget pots is still $150 to the positive.  For many people this image is where we feel we have failed, we are over budget, even in just one pot, often it makes us feel like giving up.  But not for me, not when you change your thinking.

If we look at the overall Annual Budget in the image below.

Annual Budget Sheet
Multipot-4 copy-Types of budgeting

The annual budget for Household spend showing $600 still available.  When we are looking at our budget “pots”, we need to consider what we have available in our account now, and, this is IMPORTANT, our annual budget.

There is the issue that if everything hits at once, you may not have enough in the budget pot to cover off the immediate bill, but once you have been running the system for around 6 months, it will start to really come into its own.

I want to fast forward 6 months, and add some expenses to the pot so you can see the overall effect.

Multipot-5 copy-Types of budgeting

 

In Summary

8 Months in and the budget pot is performing as planned (no surprise for an example right), we have paid the expenses that we have needed and have some left over.  We see a scary moment in month 4, where our budget pot was wiped out, and that can be stressful.  Although I have a secret weapon for that kind of situation, but that’s the subject of another blog post to come.

You can see that pots effectively “borrow” from the overall budget if they need to, as its unlikely that all your budget pots will have a major expense at the same time.  The more budget pots you have, and the larger the amount you save each month, the less the chance of you getting to the month 4 situation.

There are times, as is shown in month four, where we had a spend of $600 in one month, which wiped out the budget account.  Ultimately the overall budget WAS able to cope.  In his post about our programs (link to Joe’s post) and his take on them, as my son says his experience when starting up the budget pots was pretty difficult.  For the 1st 3 months, every time Joe put some money into his account, he would have something crop up that would wipe it out.  He does say that at least he could pay for the expenses he had.  Wa are 12 months in, and Joe has a VERY healthy budget account, that can now afford almost anything that could hit him.  He’s 18 and has an exceptional financial start.

Some notes on the example, its much more simplified that the full budget approach I have in place, but the principle is the same.
Just for reference, we now have built up to around 60 “budget pots”, this gives incredible flexibility, but starting with around 10-15 is a good beginning, you can add as you have more money available for allocating.

I can’t wait to hear your thoughts/comments on this approach, and would be happy to answer any questions you have on it and other areas, so please drop me a comment in the section below

Healthy and Financially Fit – Generation of Z

I am generation of Z!

What’s up guys! My name is Joe Burton, I am one of Mark and Margie’s kids, I am the generation of Z!  They asked me to write a little something about how their lifestyle of being healthy and financially fit has affected me, so, here is my 100% honest opinion on it….

“The nutritional side of things”

Firstly, the nutritional side of things; I am an extremely active young man, I am often out of the house almost 12 hours a day, maybe stopping by for 30 minutes in between school, work, and dance rehearsals (yes I am a dancer).  My favorite part about the healthy eating is how quick and easy it can actually be.  I could quite easily throw some breaded chicken and fries in the oven for 20 minutes for my dinner, but there always seems to be a much healthier option to be made in just the same amount of time.  It really is a choice.  My biggest struggle has always been not having enough time in the day to cook myself a good meal, but it’s amazing how much better I feel, during and after when I do manage to get some honest good food inside of me!

“Budget sheet”

Now for the money side of things! My dad (Mark) introduced me to his “Budget sheet”  2 years ago, when I was 17. I liked the idea of knowing where my money was going and being in control of it all so I gave it a try. For the first few months it was honestly a nightmare because, as is typical every single month something came up, from having to buy a new phone, to repairs on my car.  There was always some sort of expenditure that threw me off. However, I still believe if I didn’t have the budget sheet I would have been worse off.

“Safety nets”

Right now, I could have almost anything go wrong and I would be able to handle it financially. This is because little by little you build up your “safety nets” for all of the things that you may have to pay for. The budget sheet has given me so much freedom with my money, something my Dad likes to call GUILT FREE SPENDING, and it is exactly that, being able to spend money without the thought of ‘can I afford this ?’.

I have learned a lot from my old man and budgeting my money has also given me the additional side effects of discipline and maturity. SO… thank you dad, and to everyone else, ENJOY THE FREEDOM OF BUDGETING!

– Joe Burton

Improving Your Financial Health – Step 1

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, tomark profile pic for financial health 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

“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.

upset over financial healthThe 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

youth happy about financial healthCan 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.

dollar-is financial healthfinancial-crisis or financial health1. 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 ?

coffee-beans for financial health 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

achievement-is financial health$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.

fear of financial healthThe 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.