With a new year comes a whole new set of goals, and I know many of you are thinking more about your finances, so I have decided that January is going to be “Money Month”! I am going to dedicate much of my content (included these blogs) to talking about our ways we can improve our financial fitness. If this is not your thing, you be on your merry way. But before you do, I would ask you to consider why that is?
Why do so many of us avoid thinking about or talking about money?
I’m passionate about saving money. I’m also passionate about making money, but I have been a saver for as long as I can remember, and it’s served me well.
Growing up as the youngest of three kids in a middle-class family, there wasn’t a lot of extra money lying around. Our parents made it clear to us that they were not an ATM. (OK, so this was before the days of ATMs, but you get my point).
Because my parents never handed us money for anything and insisted that we had to work to earn money, by the time each of us reached age twelve, we had part-time jobs babysitting or delivering newspapers.
I also understood the value of saving for later. I was responsible for paying for a large portion of my university education and was very glad to have a reserve waiting for me when it was time. While I occasionally envied my friends who had gotten a free ride from their parents, I was aware that I was learning important lessons about how to both make and stretch a dollar.
One of my proudest moments was in 2008 when I had finally saved up a down payment and was able to purchase my first home. I was scared as hell, but I was also exhilarated. It wasn’t so much the fact of home ownership that gave me pride as much as knowing I had accomplished something monumental through hard work and saving.
Fast forward nearly ten years…
I now work primarily with female entrepreneurs, and I have seen and heard it all regarding their relationship to money. Some of my clients are incredibly focused and on top of their finances, but a vast majority of the women I speak with lack clarity about how to manage their money. Many women confess they are too scared to look at their finances at all and so… they don’t. But this fear to look at our finances actually scares me most of all.
If you are feeling fearful of what you might see when you look at your finances, I get it. But I want to get really real with you here and say in this case, ignorance is not bliss.
The first step to financial fitness is financial awareness.
You might be thinking, “Why is Lianne talking about personal finances when she is a business coach?” I believe for most entrepreneurs their business finances and personal finances are often closely linked. In fact, when I do my sales planning workshops, I typically start with three questions:
- How much money do you need to make in order to survive?
- How much money do you need to live a comfortable lifestyle?
- How much money do you need to live your dream lifestyle?
You see, until we put money in context to what it really means to us, any financial targets are irrelevant. I always start by asking how much money do you personally need before examining what the business would need to earn in order for you to clear your desired salary.
For example, your goal might be to have “a million-dollar business,” however, if you don’t have a million-dollar lifestyle and in fact live quite modestly, then I might ask you to consider your answer. Why the need to earn so much when you don’t actually require that kind of income for your lifestyle? Do you really want to put in the blood, sweat and tears that a million-dollar business is going to require?
In short, your business finances are intertwined with your personal finances. If you truly have no clue what you need to survive, thrive, and live the dream, you really don’t have a strong foundation for setting future sales targets.
So, here’s my challenge to you.
Over the next week, I want you to look at your personal finances – your own personal spending. Whether you are married, flying solo, live with your parents… it doesn’t matter…
Every person’s life looks different with different requirements and desires. Have a good hard look at those things to see where your money is going and how it’s coming in.
If you’d like to experience what most of my clients do at the beginning of their financial journeys, I would ask you to calculate the following:
- What is your base income?
What do you need to survive to support the lifestyle you currently have? Look at what you spend to get by: food, rent, transportation… whatever you currently spend on the basic costs of living is the number you’re looking for here.
- What is your comfort income?
Now I’m talking about adding in a few small luxuries that you would like to enjoy on a regular basis. That might include things like a weekly date night with your husband, a monthly manicure, a weekend away with the girls once every six months… whatever your comfortable lifestyle would look like for you in total.
- What is your dream income?
Interestingly, this is where most of the women I work with get tripped up. They are so focused on what they need to have (their basic income), they don’t take the time to think about what a dream lifestyle could look like for them, or what such a thing might cost.
Your dream lifestyle might include owning or regularly renting a beach house that overlooks the ocean, or it might include a full-time nanny or owning a second vehicle… The point is it’s your dream where the sky’s the limit.
Once you’ve identified what the dream might be, try to attach a figure to it. Does that lifestyle cost $60,000 a year, $100,000 a year, or $1 million a year?
If you try this little exercise, I guarantee it will help give you perspective on your personal finances and what you can aim for.
Throughout my life, I’ve seen evidence that saving is extremely valuable, but I’ve also learned it’s not the only way to financial freedom.
Next week, I’m going to share some tips for how you can keep more of the money you’re making.