A guest post from a 40-something year old who left his retirement planning for almost-too-late. He’s now getting his financial plan in place.
As I continue the “Late-Starter journey” I realise that my financial life has worked out exactly as planned. I never made a plan so I am living with, and working through, the consequences. I’ve also spoken to people on my journey and I’ve come to understand I’m not alone.
You, are not alone.
Before now, I didn’t have a personal financial plan (I’ve never really had a budget). I never thought that these things were either important or required. As far as I was concerned I could choose to have a budget and that choice was my business and no-one else’s. I never realised that having a plan doesn’t take away my financial freedom, it is the key that unlocks financial freedom.
I don’t like that word!
I’ve always hated the word ‘budget’, and as I was writing this I thought about things that come to mind when I think about creating or having a budget: –
- I don’t have to budget, it’s optional
- My money-life is too simple for a budget
- I don’t have time for a budget
- I’m scared of what I might find!
- I don’t have enough money to budget
- I don’t know where to start
- I’m embarrassed about my financial situation
The mention of a budget starts me thinking that I am going to be limited, restricted and prevented from doing what I want to do (what I am entitled to do). I’ll have to disclose some things about how I am spending my money that I suspect (know) are wrong.
My secret money-life
Most of the time, because our ‘money-lives’ are secret (we don’t really speak to anyone about our money) we are also not restricted in what we can and can’t do. Most of our money-decisions are made independently, rather than after discussion, agreement, permission or counsel from anyone.
Actually, if you think about it, the people you do talk to are sales-people (you speak to the car sales-person about car finance, you speak to the phone sales person about how much your cellphone contract will cost). I’m sure these aren’t bad people, but they are looking to make money. Their opinions are biased and they don’t live with the consequences.
The consequences of those independent purchasing decisions are kept ‘secret’ and, inevitably, the ever-increasing, crushing weight of debt remains invisible to those around us. Until we hit rock-bottom and we need to start reaching out to people. Then comes the embarrassment and the shame as you explain some pretty silly money-mistakes.
How do you think about your money?
Before we even start thinking about budgets we need to speak about how we think and talk about money.
The way we think about money and the way we handle our money, is deeply connected to our upbringing and to what our parents (or other older people) have taught us. We all have our own stories to tell and our own experiences but, there is usually a pattern. There is a strong indication that your attitude to money is heavily influenced by your childhood money experiences and by the way your parents dealt with money.
There’s an emotional connection
We have an emotional connection with our money. The way we think about our money (and then handle our money) is influenced and affected by our upbringing. We’ve had different life-experiences which have affected us in different ways. There are people whose Parents (or family): –
- Had little or no money yet were always happy
- Had little money and always had financial problems
- Never spoke about money
- Had lavish lifestyles and yet had money problems
- Fought about money
- Spoilt them
These are all experiences that create (or develop) in each of us unique attitudes to money. Sometimes we’re quite unaware of how we ‘feel’ about money and are therefore unaware that we are making financial mistakes.
The inevitable lifestyle-creep
You may have been raised without any money in the house. You then started working, started earning a salary and started spending money. Having your own money may have been such a ‘dream come true’ that you never stopped to think about the best way to use your money. You simply used your money without ever planning.
This is a natural reaction, but it is also very dangerous and invariably leads to a rapid accumulation of consumer-debt (car, phone, clothes, retail cards, credit cards). Suddenly you’ve been working for ten years and you do nothing but pay your debts. (See Tumi’s debt story of R172k consumer debt!)
When your salary increases, you get the better car, the better phone, the better lifestyle and your debt increases with your increased income. We call this lifestyle-creep and it is one of the most dangerous, yet common things that happen in our financial lives.
This steady decline into overwhelming debt is all connected to your attitude to money. It is connected to whether you have been taught (or learnt) anything about money and (as always) your ability to exercise discipline and self-control.
We see the same pattern in spoilt children or children whose parents lived outside of their means. As soon as they start earning money, their in-built, natural money-tendencies are going to manifest. The result is the same, soon they too will be drowning in consumer-debt.
Can money buy happiness?
The big question when it comes to money is, “Can money can buy happiness?”
Most of us believe that if we had just a little more money we would be happier. Sometimes we think that if we had a lot more we would definitely be happier. Sadly, rich people think the same thing. Everyone, no matter how much money they have, thinks that they need more to be happier.
It isn’t just how much money we have that counts, it is also important that we understand how we ‘feel’ about our money.
The problem with money is that you will probably never have enough (because you don’t even know what enough is). I remember someone saying to me that ‘Money is like salt-water, the more you drink, the thirstier you get’.
What if you already have enough to be happy and you are just thinking about it all wrong?
What is the solution?
Yes, there is a solution.
The solution: you need to get on top of your financial problems by putting a plan together. You need to build a personal financial plan. You need to have a look at where you are so that, if required, you can change direction, quickly.
Yes! You need a financial plan!
You need a personal financial plan. No matter how badly you want to reach your goals, and no matter how motivated you might be, you need to draw up your own financial plan to make them happen.
Don’t underestimate the importance of a personal financial plan. When we have no plan, we worry more. Financial anxiety is terrible. If you’re battling with your finances, you’re undoubtedly worrying. You’re probably losing sleep. You may even be depressed.
When we start making a plan we start taking back control. It may be an uncomfortable process, but I’ve found that making a plan has had a tremendously positive effect on my anxiety levels. When we know what the problem is we can start to work on the solution. The process of making a plan will uncover some truths that we may have been avoiding, truths that have been worrying you.
When we start the process of making a plan we start to consider what we are spending our money on and whether we want to (or should) continue spending money as we do. This is a very important aspect of making a personal financial plan, having a truthful look at our spending.
Right. Take Action!
Can I encourage you to make the decision to make a plan?
You don’t have to rush into this process, you need to embrace it and you need to commit to it. Nothing that is going to change in your financial life unless you make the changes. If you beleive that you are going to win the Lottery, or that you are going to inherit a truck-load of cash and at that point everything will fall into place, can I suggest you keep dreaming but, take a reality check and do something. If you can’t manage the little you have, you won’t manage anything more (you will probably just make a much bigger mess).
Here are first steps to building that all-important Personal Financial Plan: –
- Consider your relationship with money – are you clear on what you have learnt (even subconsciously) from your upbringing and what you need to do to get over your built-in tendencies?
- Decide to start that Personal Financial Plan – if it is the beginning of the month decide NOW to do this by the next payday.
- Read these articles to get you started on thinking about YOUR plan.
Your financial plan
Remember that your plan will be your map so to speak. You may find that you’re on the wrong path or that you need to slightly change course. That’s okay.