“How do I have a great relationship with my significant other?” “How do I lose 25 pounds?”
Questions like these are hard to answer. Behind my keyboard, the answers are simple. For example, it’s easy to say, if you want to increase your savings, spend less than you earn.
But meanwhile, here in the real world, it’s not even close to that simple.
When you’re in the middle of a problem, it can seem impossible to find a way out. If you’ve ever been really lost in a strange city, let your backyard get really overgrown, or are just not getting along with your kid, the problem can seem overwhelming. I’ve certainly been in impossible-feeling situations like these. We all have.
Living paycheck to paycheck is one of these problems. Being in a reality where there’s just not enough money to go around or you’re managing debt and struggling to make minimum payments on credit cards can feel overwhelming. I’ve been there, so I know how bad it feels and there are a lot of us who are struggling.
One hundred twenty five million Americans are currently in the paycheck to paycheck cycle, so the question of how to save money is extremely relevant.
Before I get into the way out of this problem, I’ll share something I believe to be one of the main drivers behind it: Parkinson’s Law. It’s normally applied to time. The idea being that work will expand or contract to fill the time available for its completion. If you give yourself all day to clean up your garage, it’ll probably take all day. Alternatively, if you give yourself two hours, you’ll probably get it done within that time frame. We experience this in real life when we sleep through our alarm and still manage to get everything done and out the door on time. I think we can also apply Parkinson’s law to our financial situations: expenses will grow and expand to consume all available money. Meaning, without putting boundaries on our consumption, we’ll spend all of our money.
It’s because of Parksinon’s Law that the golden rule of personal finance is, “Pay yourself first.” If we’re in the habit of paying everyone else first and then waiting till the end of the month to pay ourselves, there won’t be any money left over for us. When we’re living paycheck to paycheck, this is probably happening to us.
Why else are half of Americans in this predicament? Certainly there are outside influences like pandemics, accidents, and illness. Kids need things like diapers and food. We also fall victim to internal sabotage like overspending to keep up with the Jones. We make bad investment decisions. And there are dozens of other things that derail us. It’s often a combination of factors. Whatever the reasons, here we are in a cycle of not saving and wondering if it’s even possible to get started.
I’ll share with you one key idea and two areas for you to focus on to end this cycle. By doing these things, I’m confident you’ll be on track and in a position to start saving money.
The key idea is this: Manage your life as if it were a business and become your own CFO.
“A chief financial officer is the senior executive responsible for managing the financial actions of a company. The CFO’s duties include tracking cash flow and financial planning, as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions.” So, it’s the person who does all the money stuff. What does that mean for you? I’ll break it into two areas: internal and external.
Here are the key aspects to be thinking about internally:
- What are your core beliefs about money? Are they positive or negative? Could they be holding you back? It’s essential you become aware of what you think and feel about money.
- How are you currently utilizing your three most important resources of time, attention, and money? Think about how you spend your time. Is it how a successful person spends theirs? What are you focusing your attention on? Is it helping you become a better version of you? What are you spending your money on? Is it in service of the person you want to be?
It’s easy to fall into the trap of wasting time, thinking about things that aren’t important, and spending money on crap we don’t need. I still do it. The key to getting better is becoming aware of it and stopping the behavior when we recognize we’re doing it. Here’s how:
- Do you have the knowledge you need to be successful with money? Do you understand how to budget? Do you know how your 401(k) works? Do you understand what target date funds are? I’m not expecting or encouraging you to become an expert, but there are fundamental aspects of personal finance you need to know.
- Finally, do you believe you’re someone who can be financially successful? You are and you can be. People become financially successful everyday and with the right resources and support, that can be you too.
Now, the key aspects to be thinking about externally as CFO of you:
- Cash flow. A CFO carefully tracks revenue, overhead, profit, and loss. Without gaining a thorough understanding of your cash flow, you’ll have a difficult time knowing where you stand financially. Paying close attention to your monthly cash flow will also help you identify things you’re spending money on that are no longer of value to you.
- Budgeting. I never liked budgeting and I still don’t. That being said, I recognize the power of having a budget. It helps to keep us on track to reach our goals, and helps us to know if we can afford to buy or invest.
Will being courageous and accepting the responsibility of becoming your own CFO guarantee your ability to start saving money? No. But it will most certainly position you for success. As with all problems worth solving, it will take time and it will be difficult. Those realities are what keep 125 million Amercians trapped in the paycheck to paycheck cycle.
All too often, people fail because they don’t have a plan. Let’s put a plan together now.
- What will you do to figure out what your core beliefs about money are?
- How can you become more mindful of how you’re spending your time, attention, and money?
- Where can you learn more about budgeting, cash flow, your 401(k), and target date funds?
- Who can help support you on your path to financial success?
Talk to a friend, coworker, or your favorite cousin. Don’t feel like doing that? Get info on financial coaching and hop on a call.
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