Recently, I watched a show on Amazon Prime entitled, “Suze Orman, the Financial Road Map”. And yes, it was an eye-opening experience. The concepts that were taught to assist in a financial check-up, to serve as a financial elixir, and to potentially increase financial health were retirement road, priority place, emergency fund lane, and the streets of truth and honesty. Well, it was definitely something along those lines. The funny thing is that this episode was a part of the 2015 season.
The things I learned as I watched this episode were simple. 1). It’s not enough just to know how to do something; we must apply what we learn with consistency. 2). Knowing our current reality and patterns of behavior are prerequisites for forward movement. 3). A change of mindset about how I managed my finances in the past was long overdue; and I am ready to embrace this change.
It’s Not Enough just to know how to do something; we must apply what we learn with consistency. You’re like me if you made any of the following statements… I know that it is good to start a retirement account, prioritize my spending, or to start an emergency fund or savings account. You are also like me if you have made such efforts and you were not as consistent as you could have been. Knowing to do something or knowing how to do something is only part of the equation; we must actually put forth the work to get it done. We must be willing to sacrifice some things, some patterns of behavior, and understand where we are so that we can move forward. Uncontrollable finances can cause factors such as stress, obesity, fatigue, working at dead end jobs that can all lead to epigenetic changes in the DNA. IF you want to know more about epigenetics and factors that can modify epigenetic patterns, please visit, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3752894/.
Know your current reality. If you research how much should we put back from each paycheck for savings, you will find suggestions such as 5%-20%. There is a rule of thumb that states that we should have a 50/30/20 rule.This is consistent among multiple resources. 50% of our income should go to expenses; 30% of our income should be discretionary purposes; and 20% of our income should go to savings. I think this is a good optimal goal to strive for if you can clearly see where your money is going. I implore you to figure out a formula that works for you if you are unable to realistically meet this goal. Whatever formula that you choose, let it be S.M. A. R. T.
In order for your goal to be S (Specific) M (Measurable) A (Attainable) R (Realistic) T(Timely), you must truly understand your current reality. Make sure your current reality is visible to you so that it is no longer hidden. For instance, write down all the bills that you are responsible for paying each month. Once you do this, compare this to your monthly income. Determine your debt to income ratio. Will you like what you see? If yes, determine your formula for savings. If not, it’s time to take steps to decrease the debt to income ratio.
I learned that the debt to income ratio represents positive financial situations if it is below 100%. The farther your ratio (%) is below from 100%, the less debt you have. In contrast, the debt to income ratio represents negative financial situations if it is above 100%. The farther your ratio (%) is above 100%, the more debt you have. Then, we can conclude that if our debt to income ratio is equal to 100%, this represents a financial situation that the amount of debt that we have equals our income. The strength of this position is that our debt to income ratio can quickly fall below 100%. The downside of this position is that our debt to income ratio can rise above 100%. Use the current reality of your debt to income ratio to determine your formula for savings.
Changing my mindset. If you are familiar with I See You Growing Life Coaching, then you know that we do monthly surveys. It is important to know how other women feel about topics that are important to women. It is important for I See You Growing Life Coaching to display this data so that we as women can continue to grow from one another. Education is important.
One of the survey questions asked if we knew what it means to be financially secure? 72.7% of the survey participants answered yes, 18.2% answered no; and 9.1% answered maybe. Remember, it is not enough to know something, we have to be willing to have a change in mindset so that we can manage money differently. The participants were also asked if they knew their credit score. 72.7% said yes and they check their credit score often; and 27.3% answered no and they do not check their credit score as often as they should. Knowing our credit score helps us to know our current reality.The participants were asked about the type of debt they currently have. 72.7% of the participants answered that they have credit card debt and student loan debt; 63.6% had medical bill debt; 27.3% had pay-later accounts; 18.2% of the participants answered that they have tax debts or payday loan debt. None of the participants reported that they have fine and legal fees or gambling debt.
Education and support are important. The participants were asked if they knew the difference between gross and net income. 90.9% answered yes and 9.1% answered maybe. The participants were asked if their debt to income was negative, positive, or zero. All participants were employed. 63.6% reported their debt to income ratio to be below 100%; 27.3% answered that their debt to income ratio was above 100%; and 9.1% answered that their debt to income ratio was 100%. The participants were asked to select their retirement accounts. 54.5% answered that they have a 401k; 36.4% answered that they do not have a retirement account; and 9.1% answered that they have a bank IRA.
We are still learning and growing. The participants were asked how much they contributed to their emergency funds. 27.3% answered less than 1% and 1-5%; 36.4% answered that they do not have an emergency fund; and 9.1% answered 5-10%. The participants asked how much they contributed to their savings. 45.5% answered 1-5%; 27.3% answered less than 1% or no savings account.
Growth does not happen without change. The participants were asked what steps they should take to secure their financial future. 72.7% answered they need to pay down debt; 63.6% answered they will start an emergency fund; 45.5% answered they need to start a savings account or find a new means of income; 27.3% answered they need to start a retirement account; 18.2% answered they need to supplement income. 27.3% answered that they need to do them all.
Embrace change. Aren’t we ready to do something different so that we can have something different? Expect growth. It is okay to say that I have outgrown my current reality. It is okay to say that I have outgrown the survival mindset and am ready to pursue a growth mindset. What needs to change about your current reality so that you are able to have more financial freedom in life? What environment do you need to transfer to support your financial growth?
As your life coach, I am ready to reflect and answer these questions. I will examine my responses and be S.M.A.R.T. I will look for help. I will show a willingness to change.