It seems to me that these days, we are better at managing money when we have less of it. We budget, we keep track of our expenses, and we employ savings goals that we work diligently toward.
There’s a lot that can be taken from this. In particular, I see financial complacency so often amongst higher income earners. It’s a dangerous mindset that cannot be underestimated. When we fail to think about our future and what we can do now to ensure financial security, we jeopardise our prospects at living a comfortable and stress-free life.
I see it so often, individuals splashing unnecessary money around that should be directed toward investing in a financially stable future for themselves and their family. Of course it’s ok to treat yourself every once in a while, but as a consumer driven society it seems our management of the money we work so hard for is non existent for many. We earn, we pay taxes, we spend, and on this treadmill we endure the better part of our pre retirement years.
This accumulates to a passion of mine, encouraging financial literacy for individuals from all walks of life. I believe everyone has the potential to build wealth, irrespective of how much they earn and what their current financial situation is.
The problem is, too many individuals assume wealth is merely about working harder and earning more. Which explains the phenomenon I see of individuals earning six figures yet still acquiring no savings or assets.
The basis to any financial independence plan is “to consciously choose and know where you spend your money”. Hence, one must ask themselves the all-important question: if your current spending pattern is religiously honoured, will it lead to you having wealth in one, three or five years time?
Personally, I believe the way in which we allocate our money as a pattern of behaviour says a lot about the regard we have for ourselves. I believe that consciously choosing to manage one's money in a positive way is a basic act of self care.
“Where does it all go?”, she asks
A client of mine, Sophie, earns $125,000 per year. She has been earning at this level for at least five years, yet finds her finances largely unchanged from when she started. She still rents with her partner, drives the same car, takes the same holidays and has the same taste in liquor and clothing.
“It simply doesn’t make sense. I don’t own a house, fancy car or expensive things, so I don’t understand where all my money has gone!”
Together we sat down, tallied her primary expenditures including taxes, rent, insurance, food and clothing, and came up with an estimation of how much she should find leftover for her at the end. Over five years, Sophie should have expected to see $225,000 in her savings account left over after all of her expenses (her long term partner pays 50% of all living costs).
So, where is all this missing money? A question I hear echoed so often.
This is where financial literacy becomes fundamental. Learning to allocate and track your finances in a way that is simple, easy and manageable changes the game and quality of your life.
Where Sophie went wrong is that she failed to think about how she allocated her money, as her pattern with money was lifestyle driven and ad hoc to stay the least. Thankfully, she woke up from her spending slumber to explore what is possible when she acts from a place of self care and chooses consciously how to allocate her hard earned dollars.
Where can I start?
Naturally, we’re all different. Some of us like to pick up a pen and paper, whereas others are more familiar with Excel spreadsheets and tech savvy apps. Whatever tool you use, the gesture is the same. Managing one’s money is an act of self-care that cannot be neglected!
If you find Sophie’s problem all too familiar, here are some great tools to get you started with your new approach to caring for yourself and your future by managing your money.
And the exciting part is, many tell us they even begin to enjoy monitoring their hard earned cash!
Mint Mint is an online service which tracks your spendings, loan balances and investments by linking to your bank account, informing you of outstanding and upcoming expenses and helping you stick to your set budget.
Wally Similarly, Wally is an iPhone application which tracks spendings and budgets by allowing you to take photos of your receipts and linking to your bank account to review cash flow.
Pocketbook Australia’s top money management application, Pocketbook monitors your finances, allows you to set spending limits and gives warnings when you’re close to your budget, so you’ll never have an excuse to go over.
MoneyBrilliant This application puts emphasis on managing your money priorities in relation to spending, investing, debts and savings goals. MoneyBrilliant links to your bank account to make managing your money easier and more comprehensive.
ASIC’s MoneySmart The Australian Government’s contribution to money management programs, MoneySmart teaches you what you need to know to get in control of your finances, and includes money calculators such as TrackMySPEND and Budget planners for your use.
Acorns Acorns builds your investment portfolio for you, automatically rounding up to invest odd change from purchases, set amounts at specified time intervals, or one-time lump sums.
So, in conclusion, does high income always result in wealth? Absolutely not. What matters is what you do with your money. And it’s never too late to start.