Trapped in Survival Mode?

Many of my blog posts in September and October focused on foundational concepts like saving and budgeting. This article ties those concepts together into one nice and neat package.  I even added a bow!

The Survival Trap

Do you feel stuck in survival mode, with no clear end in site? Maybe you are stuck in a job that you hate. Or your compensation doesn’t reflect your worth as an employee. Oftentimes, there is a disconnect between who you are now and where you want to be. Don’t get trapped in a state of survival. Rather, clarify goals and shift your mindset from one of scarcity to abundance. Embrace the opportunities ahead.  Prepare to thrive.

Start with a Clean Slate

Make the decision today to start fresh. Don’t beat yourself up over past financial mistakes. If you have trouble with focus, I suggest reading Michael Hyatt’s latest book Living Forward: A Proven Plan to Stop Drifting and Get the Life You Want. Hyatt is a NYT bestselling author, and he paired up with executive coach Daniel Harkavy to provide a blueprint for life planning. You won’t go through this book in a day. It takes some self-reflection and written articulation of deep-seated desires. Believe me: your time is well spent. In the end, you’ll have a clear life plan and steps for implementation.  

Be Healthy

There are several parallels between physical and financial fitness. To be healthy in either realm, you need to focus on the goal and put follow-up systems in place. Financially speaking, resist the temptation to spend on big, frivolous items even if you have a sudden spike in income. On the other extreme, you may have plenty of excess cash and choose to hoard it. Neither of these behaviors are healthy; rather choose a middle-of-the-road approach and consider these guidelines: 

  1. Start Small - Any behavioral finance expert will tell you that overnight transformation is impossible. In fact, debt management programs will tell you to pay off the credit card with the smallest balance first (regardless of interest rate). Why? Because small wins build on one another. Maybe your long-term retirement savings goal is 12% of salary. Right now, you are contributing nothing. How about starting with 5% of salary and increasing it by 1% each quarter? You’ll be at your target goal within 2 years.  
  2. Sequence Matters - ALWAYS move income into your savings account(s) first. If you don’t have enough remaining to pay expenses, focus on cutting discretionary expenses like entertainment and meals out.  
  3. Remove Temptation - Consider any savings account as untouchable. Put an accountability mechanism in place so you are not tempted to draw on the account, unless for its intended purpose.
  4. Automate - Utilize automatic bank transfers (e.g. 5th and 20th of each month) for saving goals and large recurring payments.

Income - Savings = Expenses

Want a real game changer?  Decide on a savings goal first. Many personal budgets look at income and subtract expenses to decide on savings. I think this is backwards. How are you ever supposed to reach long-term ambitions if you don’t intentionally set a savings goal? This is a perfect time to plan for next year. For traditional employees at large companies, automatically direct a certain percentage of salary into retirement savings. Don’t just stop at retirement goals. Take the month of December to decide how much you will save towards education, vehicle purchases, and other goals that are important to your family.    

Honestly Assess Yourself

Take a hard look at your 2016 budget. Examine areas of success and those that need improvement. Be honest with yourself and your family’s financial situation. If married, it is important for the two of you to examine this together. An expense reduction in one area may be easy for you but very difficult for your spouse, or vice versa. This could be an emotionally charged time as you face reality. One solution? Hire a neutral, third party expert to listen and help push through any disagreement. If you want to involve me in your 2017 financial planning, please schedule a complimentary virtual consult here.  Or if you prefer a group format to focus on cash flow, stay tuned for WorthyNest online courses coming in 2017.

Forever Faithful,

Deb Meyer, CPA, CFP(R)