Just Turn On The Lights: A 3 Step Guide To Getting A Hold On Your Finances
There’s someone out there right now that is completely overwhelmed by their finances. They don’t make as much as they’d like, they spend more than they should, and they think there’s no way they’ll ever dig themselves out of that hole. More than likely, there are a few someones…
April is Financial Literacy Month and as far as areas I’m passionate about, I don’t know if you could find a better one. It’s a topic I’ve heard far too many people say “we were never taught that in school” or “well I don’t understand my finances.” I’m here to tell you that personal finance is not rocket science, it just feels so daunting because we spend every day thinking we’re the only ones who don’t get it and that everyone else understands it. I’m going to go through 3 easy ways to get a handle on your finances, and if you know someone who said one of the 2 quotes above, please send this to them, and let them know, they are not alone and they don’t have to be.
1. Get Rid Of The Monsters
The number 1 reason people are afraid of their finances is because it feels like the monster in the dark. You can’t tell what size it is and you can’t really see the details of its face but you know they’re scary. We’re going to do what our parents did when we were kids; we’re going to turn on the lights and see that the monster was a chair with some laundry that needed to be put away the whole time.
I know you’re going to hate me for saying this, but we’re going to make a budget. STOP, DON’T CLOSE THE TAB JUST YET. I know everyone says you have to make a budget, but I’m going to make it easy the same way I did for my wife, my wife’s sister, my brother, and my friends when they gave me the same anguished look you’re giving me right now.
Step 1: How much do you make in a month? Write that down and congratulate yourself! All we do is think about all the people who make more than us, but how often do we take the time to say I’m doing what I need to. I’m working hard, I’m getting paid. Nothing wrong with wanting to make more money, but let’s celebrate that we’ve already made some.
Step 2: Add up what you spent last month (this is the not so fun part). But don’t punish yourself for this. You can’t go back and unspend the money now, but we need to turn on the lights in order to see the monster. Go line by line in your bank account and any credit cards to add up everything you spent.
Congrats! You see the chair with clothes on it!
Do you spend more than you make? Is it less? If less, we’re already on the right track. If more, then we just have an extra step. Remember: you aren’t failing until you’ve chosen to fail.
Step 3: If you spend more than you make, we just have to figure out what things we HAVE to spend on every month no matter what: rent, internet, phone bill, etc.
What’s left over does not have to go into the dumpster. I’m not here to be the boomer who tells you that millennials spend too much on avocado toast and Starbucks so that’s why they’re broke! Instead, I’m here to tell you that the money we make is meant to be spent! We just want to make sure we’re spending it in a way that is best for what we care about. That brings us to the next topic.
2. Want to play a game?
Saving money is boring. Winning a prize is fun! Let’s win a prize.
Now that you’ve subtracted all the costs you’re going to pay every month, you have an idea of how much you actually can spend every month. Keep this number in your head and try your best to take an educated guess how much you have left after each purchase a month. You can buy that coffee, you can go out to lunch with friends, you can see a movie. But I want to challenge you.
What’s something you reallllllllly want? A vacation? A laptop? Clothes? Be specific. Pick out one thing that you can’t afford right now, but you want. See how much it costs and write that down too. Just like our spending, our goals can be a scary monster too when we don’t know what they look like.
Now that you have that number, let’s play the game. How long would it take to buy it if you put $10 a week in a piggy bank? $20? $25? If it’s something big, you might be looking at over a year or if it’s something small, maybe you could have it in 60 days. The important thing is you could have it. You could! It could be yours! Now, do you really want it or just kind of?
If you really want it, put $10 in an envelope, on your desk, in a separate bank account right now. Then, see if you can do it again 7 days from now. You don’t have to. I will not come knocking on your door asking for $10 in a week; not even if you ask. But if you want that thing, you’ll find a way to find $10.
Now, I told you we’re not going to throw all the other things you spend money on a month in the dumpster, and we’re not. You can spend the exact same amount as you did last month, but now you’ll ask yourself before every purchase, “will I still have this week’s $10?”
You’re not saving money anymore, you’re collecting tickets or checking off boxes to win a prize. IT may feel dumb, but making this a fun challenge for yourself will start to carry over to other parts of your finances. You can do it with little things like a nice meal once or twice a month, a video game you want, a gift for someone you love. All prizes that you can get if you win the game.
3. Everyone’s least favorite 4 letter word
I’ll be the brave one to say it: D-E-B-T. DEBT! Please don’t make me wash my mouth out with soap.
Whether it’s college, a car, a credit card, many of us have debt. It sucks. To continue the same analogy we’ve been using, it is a monster holding onto your back 24 hours a day.
How much is yours? I’m genuinely asking. Do you know how much debt you’re in? Go look right now, I’ll wait..
It feels impossible to climb that mountain doesn’t it? Good news is, I’m not telling you to pay it all right now. I just need you to know how high that mountain is and how much does it grow a month. What is your interest rate on this debt every month (Remember, if it doesn’t say ‘monthly interest rate’, just divide your interest rate by 12)? Write it down.
Every month, if you pay at or below that interest rate, your debt will not shrink. It will snowball, picking up weight and speed as it rolls down.
All we have to do right now is try to pay a little more than that. If you can pay 2-3 times whatever your monthly interest would be, then even better. No matter what, the important piece is making sure that balance goes down (even by a little) each month.
We can play the same game we did with our savings. If you pay the amount you’re comfortable with every month, how many months until it’s paid off? Remove “I’ll never pay it off” from your vocabulary, because that’s an actual number right there in front of you.
My wife had a tremendous amount of college debt when we first started dating. It ate at her every day. She felt powerless. We went through the same exercise I just talked you through and we found that there was a monthly amount she felt comfortable with that could pay it off in 10 years. That might feel like a long time, but in 15 minutes, we turned something that paralyzed her every second of every day and made her afraid to look at the balance into something that can’t handle 120 paper cuts.
She hasn’t worried about it since.
Conclusion:
I could go on and on all day about topics like understanding the value of credit cards, what’s a Roth IRA, how do you afford a home. Maybe I’ll cover those a different day, but for now, here’s the 3 steps that you can show your teenager or the 50-year old who thinks they’re the only one who doesn’t get it.
Making money is the hard part, let’s not make spending it hard too.
Check out these very valuable local businesses within the North Shore Chamber of Commerce if you want help with areas of your personal finances:
- Associated Bank
- Baird – The Naleid McGuire Group
- Bank Five Nine
- Data IFS
- Edward Jones
- FOCUS Administrative Services
- Gramoll & Associates Insurance
- Guerin & Associates – American Family Insurance
- Health Markets
- Landmark Credit Union
- Mid-State Insurance
- Milwaukee Jewish Free Loan Association
- PNC Bank
- Shorewest Northshore
- Sparks Collaborative Results
- The Schwister Group – Global View Capital Advisors
- Town Bank
- Transition Health Benefits
- WaterStone Bank – Fox Point
Author: David Christensen (Deputy Director of the NSCC)