This is a guest post by Kelley C. Long. She is a nationally sought-after personal finance expert. You can find and follow her on her KCL Money Coach website or at @kclmoneycoach on Twitter.
Financial success or financial security means different things to different people. But in my work with hundreds of clients, I’ve found a common thread: Financial security simply means having choices.
And when it comes to your career, that means choosing to stay in your job because you want to, not because you feel stuck by your lifestyle expenses. Or deciding to leave your job and take a risk on a new path, knowing that you can afford it.
And while the concept of financial security and having choices means something different to everyone, it does have some basic building blocks. Those include knowing where your money is going, getting debt free and staying there, and having a savings plan. Mastering these three important financial concepts will free you to pursue career achievement, knowing that you can take a risk or weather a setback.
Knowing Where It Goes
Most people can list their fixed monthly expenses: things like rent or mortgage, household utilities, childcare costs, car payments, etc. But they often don't have a grip on where the rest of their money goes.
If you haven't done a personal spending analysis in the past year or so, now is the time. You might be surprised to learn how much you spend on lunches or at a particular store. My spending analysis showed that I was spending way more than I thought at the grocery store. I would pop in to buy something I needed to make dinner, then pick up three other items I didn't really need.
The point of this isn't to freak you out or place restrictions on your spending. It is to make you aware of your habits and offer you the chance to make adjustments if you find that your spending doesn’t align with your values. And if you don’t know how much you’re spending, it’s impossible to set savings goals that lead to financial security (and choice).
The quickest way to get an idea of where your money is going is to look at the past six months of spending then sort each expenditure into categories like housing, transportation, food, personal care, child care and savings. You can do this by downloading your bank statements into Excel or using free sites like Mint.com.
Getting Debt Free and Staying There
If you're carrying credit card debt, you know it can be stressful to continue to pay for purchases that you made months or even years ago. The biggest mistake I see people make, when trying to get debt-free, is continuing to use the cards while they're trying to pay them off. I see people make huge monthly payments on their credit cards, only to find that their balance doesn’t decline, because they used the card when they ran out of cash. It becomes a vicious cycle.
|If you want to pay off your credit card debt, you need to stop using credit cards. Period.
The hard truth is that if you want to pay off your credit card debt, you need to stop using credit cards. Period. Getting debt-free and staying there is a cash flow issue. And cash flow issues require cash. If you don't have the cash to make a purchase, don't make a purchase.
I can say from experience that when I choose to go without instead of buying on credit, it's amazing how many "needs" I no longer have. And it's even more amazing how satisfying a purchase can be when I put it off until I have the cash.
If you find yourself two days before payday with no money in the bank and you can't avoid buying groceries, go ahead and put them on the card. But then on payday, take the amount you charged and immediately send it to the card company. That’s the ONLY way it will work. I promise.
This requires discipline and the pay-off may feel like it's in the distant future. But like many others, you are likely to find that living a cash-only lifestyle is its own reward.
Having a Savings Plan
Traditional financial wisdom states that you should have anywhere from 3 to 12 months of expenses tucked away for a rainy day. I call this the "cash cushion." The number of months depends on whether you're a home owner, the stability of your job, and the ease with which you could cut expenses to a minimum in the event of a job loss or other income disruption.
What's most important is that you actually start saving, no matter how small. With the first two building blocks in place, you can figure out how much you can save each month toward your cushion.
Once you know the amount, make it automatic. If your employer allows you to direct your pay into multiple accounts, set up a direct deposit to a savings account right out of your paycheck. If that's not possible, set up an automatic online transfer to take place each payday. And look for opportunities to increase your savings amount whenever possible. Even starting with a small amount, you’ll find that your cash cushion can grow surprisingly quickly. And you’ll feel satisfied and secure as you watch it grow.
These three building blocks of financial success may seem simple, but they aren't easy. The trick is to take positive action, and don’t beat yourself up if it takes a few months to get into some new habits. You’ll find your financial peace of mind will carry over into your daily work – without money worries, you can focus all of your energy on being your best and tackling your career head-on.
Question: Have you ever had to reduce debt?