Three Critical Rules of Money Management

Happy New Year!  We hope that you have had a fantastic time over the Christmas/New Year period and enjoyed a least a few days off.

It’s (late) January, a time for reflection about last year and looking ahead at self-improvement for this year.  Once you have worked through the diet and exercise goals (they always seem to be fairly near the top of my list), there’s the money planning for the year.

Here are the Three Critical Rules of Money Management that you need to incorporate into your planning.

What does wealth mean to you?

Typically in our society wealth is equated with how much money we have.  Wealth can mean different things to different people and what it means to you comes down to your core values.

As a money mentor I love to listen and learn from as many different experts and  differing perspectives about money as I can.  So it was with eager anticipation that I attended Dr John Demartini’s recent talk on wealth in Auckland.

I wasn’t disappointed, it was fascinating. I could really relate to what he was saying.  It isn’t just about changing your money behaviours, you need to go much deeper than that and explore your beliefs and core values.

When you ask a room full of people how many of them want to be financially free most of the room put their hand up.  When you ask the same room to put their hand up if they are financially free, very few do.  Why is this?

The Have’s and Have Nots – The gap is growing.

Wow, what an eye opener. I have just watched Nigel Latta:  The new Have’s and Have Nots.  What a powerful documentary about the changes in the New Zealand economy, the impact on families and the widening gap between the have’s and have nots.

I highly recommend that you watch the documentary, but if you can’t spare 44 minutes, then these are the key points that I picked up from it.

We have a new ‘class’ in New Zealand, The Working Poor.  These are the families where both parents work full time, and still don’t have enough money to meet the day to day needs of their families.

If something goes wrong and they need to borrow money; say for car repairs or a family funeral that is out of town, they have no option but to borrow money.  The banks won’t lend it to them, so they end up in the hands of the loan shops, who will happily lend them money at 10% interest.  That didn’t sound too bad until it was clarified; that was 10% per week!!  When you are desperate you tend to think in terms of  immediate needs, and don’t calculate the longer term costs so the situation just keeps getting worse.

The statistics are scary.  One in five families don’t have enough to live on.  One in three families couldn’t survive more than two weeks if the main breadwinner lost their jobs. A staggering 55% would run out of money in four weeks.

Will you have enough money when you want to retire?

A scary question isn’t it.  I meet quite a number of people who don’t want to even think about retiring let alone thinking if they will have enough money when they finally do want to retire.

The answer to the question was the subject of a presentation at a network breakfast I attended.  A certified financial planner used a case study to illustrate the point.

We probably all know this.  We are living longer.  But maybe we hadn’t quite connected the dots in terms of having enough money to retire on.  It wasn’t that long ago that the life expectancy after retirement at age 65 was only 9 years.  Now it can easily be 20 to 30 years, so the number of people potentially outliving their capital is going to be quite significant.

The website My Longevity has gathered data to help you work out your life expectancy based on your lifestyle rather than actuarial data.  It is worth spending a few minutes to complete the questionnaire to see what your life expectancy could possibly be.  I did mine and unless I get hit by a bus, I potentially will need my capital to last until I am 106!!  I certainly don’t have enough to last that long.

I’ll be happy when…..

“l’ll be happy when I get the pay rise” or “I’ll be happy when I get a ………”  Just insert whatever the word is for you.  Why do so many of us wait to be happy.  What is wrong with being happy right now?

Do you know this song?

“If you’re happy and you know, it clap your hands.
If you’re happy and you know, it clap your hands
If you’re happy and you know it and you really want to show it,
If you’re happy and you know it can your hands.”

I think it is about  time we started clapping our hands, instead of looking outside of ourselves and waiting until we have more stuff to make us happy.

We need to stop, take a deep breath, look around and see where we are right now and take pride in our accomplishments to date.

I am not saying there is anything wrong in wanting more things, a nicer house, flash car, but our happiness shouldn’t be delayed until you have them.

So, go for a walk in the park, watch the sunrise.  Tell your partner or children that you love them, start looking inside yourself rather than externally for your happiness.

If you don’t feel happy right now, then every day when you wake up think of one thing you are grateful for, as the list grows, so will your happiness.

If you want to be a little crazy then sing the song and just start clapping.

We love feedback, so please feel free to leave us a comment or contact us.

Lynda Moore   http://www.mymoneyseeker.com

 

 

Money, Behaviours and Beliefs

If you aren’t getting the results you want in an area of your life, take a look at your behaviours.  Are they helping you or hindering you?  If you are up for the challenge take a step further back and examine the underlying belief that is generating the behaviour.

If you really want to make changes in your life, this is a very important equation to learn and more importantly, to implement.

Beliefs drive Behaviours.  Behaviours drive Results.

My clients challenge me on this and ask, “Why should I examine my beliefs? I just want to spend less/save more.”

A belief is an assumed truth that we then make our reality; our beliefs become self fulfilling prophecies. So if life is going well for us then our beliefs are working and we don’t need or want to examine them; we may not even be aware of what the underlying belief is.

Let’s look at an example. I have a belief that exercise is good for me.  So even though it occasionally causes me physical pain (particularly after a personal training session),  I don’t question or challenge my belief because I know I have more energy on the days that I exercise and I know my health is much better than my pre-exercise days.  My belief is working for me.

5 tips to help you stop throwing good money after bad,

Throwing good money after bad or the ‘Sunk Cost Fallacy’ is another form of overspending that we can slip into without realising.  It could be the house renovation that becomes the never ending money pit and deep down we know we will never recover these costs when the house is sold.

Sunk Costs are everywhere and they don’t occur only in your finances or business.  Have you sat through a really bad movie thinking “oh well, I’ve watched an hour so I may as well watch the rest”.  Gottcha!!  You have just succumbed to a Sunk Cost.

“In for a penny, in for a pound” my Dad would say, as we headed to the local eat-all-you-want buffet restaurant for a family dinner.  “I’ve paid my $25.00 (ok, this was a little while ago), so I am going to get my money’s worth and eat as much as I can”.  Over the course of the next couple of hours he was true to his word!

So what is the Sunk Cost Fallacy?  Well, in a nutshell: we keep making decisions (monetary or otherwise) based on how much we have already spent on a project.  It’s hard to let go of something that is going backwards, or not complete an expensive project even though the cost of continuing just isn’t logical.

What stories are you telling yourself to justify you’re spending?

I bet you didn’t know you were an author did you.  Whether you recognise it or not we all tell ourselves stories to justify and rationalise our spending.  Some of those stories are short blogs, and others are full length novels!

What do I mean by justifying and rationalising our spending?  I looked up the Merriam-Webster dictionary to see what they had to say about it and this is the definition of justify, “To provide good reason for the actions of [someone].”

Interesting.  What about rationalise?  “To think about or describe something (such as bad behaviour) in a way that explains it and makes it seem proper, more attractive etc.”

I probably don’t need to add much more as those two definitions really sum it up.  But I am going to.

We were at a dinner party recently, and the usual question of “what do you do” came up.  Generally one of two things happens when I say I am a money mentor.  The person suddenly has to go and talk to someone else (the same thing happened when I used to say I was an accountant).  Or I get chapter and verse about how good (or bad) they are with money.

Money is just money but we see it differently. Why?

It’s called the framing effect.  We view money differently depending on the source, and what is even more interesting is we generally aren’t even aware that we are doing it.

Imagine you are walking down the street, minding your own business, when you happen to look down, and there right in front of you is a $10 note.  You look around to see if you can see anyone who might have dropped it.  No one is there so you pick it up and pop it in your pocket.  You are probably thinking “this is my lucky day; I’ll go and buy that magazine I was looking at”.  This is the framing effect in action found money you can spend on anything you want.

I can still clearly recall receiving my first week’s wages when I started working as an 18 year old.  I was so excited; I had never had that much money at one time. I went out and shopped and spent most of it.  My prize purchase was a beautiful white sheepskin rug.

What does Money mean to me?

I touched briefly on what money means in my blog “Money. Love it or hate it you have to live with it”.  Let’s delve now a little deeper into our own money meanings.  It’s important to define what it means to you, as it impacts on your view of the world, how you view others and your decisions. If you want different results you need to dig deeper than just your behaviours.

So let’s recap.  We all have a relationship with money, take that as a given; or read the blog Money. Love it or hate it.

We also associate meaning to money and once you know what that meaning is you can begin to understand more about why you make the financial decisions that you do and how you can make different ones.