Welcome to one of the most exciting blog post series I’ve ever started… healthy finances. This series is for all of us who are looking to take control of our finances. Less debt. Less stress. More impactful purchases. Greater savings. Financial freedom. Positive money relationships. Live well-lived. No one talks about this stuff, so get ready for some major realness…
LET’S GO THERE… ALL THE TABOO TOPICS
Money talk is hush hush, right?! Raise your hand if your norm was to never speak about how much money you earn, have, save, spend, etc. Raise your hand if you were never formally taught how to manage your money, create a budget, properly save/invest, etc. It’s no wonder why the average American carries $38,000 of personal debt excluding a home mortgage. source
There aren’t many people let alone women out there who are openly and honestly talking about these things. On this blog, I’ve always shared… everything. I share everything that helps me live a better life. Most often it’s fitness and wellness related, but as I evolve as a person, I also share on goal setting, personal development, motherhood, anxiety, business, and now… finances. I’ve NEVER had a stronger response to any topic than when I shared a bit about finances, so I know this is of huge interest to you as well.
I’m not an expert. My husband and I have just decided to go against norms. We are trying to absorb as much information as possible to set ourselves up for a healthy financial future, and I thought it would be helpful to share everything along the way. I’m about to go there and discuss all the taboo topics.
MY FINANCIAL BACKGROUND
If I am going to share some of my financial information and approaches, it’s only natural for you to wonder about my financial background, right?! I get it. When I hear someone talk about skincare and how a product transformed their skin… immediately, I’m like “did you have acne or was your skin always perfect” and “are you an avid product researcher or are you a dermatologist?”
God bless those who have parents who gifted them the down deposit on their home or who have in-laws that treat them to European vacations or who have a grandparent that gave them a car. I mean this – good for you. However, I am 110% about the self-made life. If I have it, I’ve bought it. Just getting it out there… Anthony and my life is solely financed by ourselves.
DISCIPLINE… ONE THING YOU NEED FOR THIS TO WORK
I want to let you know that regardless of your current financial state, I know that some of what has worked for me can work for you because of one thing… discipline. A healthy lifestyle requires discipline. It takes discipline to workout consistently. It takes discipline to choose healthy options over junk food. Similarly, healthy finances require discipline. The good news is that I know you have it in you.
WHERE WE ARE HEADING
I want to discuss a ton of topics in this blog post series. There is so much to unpack that I need to break it down into several topics, so I can get into the nitty gritty. I compiled a list of what I know I will be sharing. This is an ever-evolving, ever-growing list, so if you have topics you’d like to see, let me know. I’ve never received a stronger response than I had to this topic, so I can’t wait to get to sharing.
- healthy finances: where do I begin?
- financial principles we follow regularly
- how we cut $1000+/month in personal spending
- how I learned to establish a healthy relationship with money
- our approaches to paying off debt (highly requested!)
- a look into our personal finances + goals
- how to create a modern day budget + do I need one?!
- where we invest our money + how we plan for the future
HEALTHY FINANCES: THE START OF OUR JOURNEY
Anthony and I have always lived within our means even back when we did not earn a whole lot. For example, in our very first apartment, our mattress sat on the floor for a good few months. Anthony was our only source of significant income. I was still in school and working very part time at a retail store. By the time we paid our bills and put a small amount into savings, we didn’t have a ton left over. So, when it came to purchases like furniture, we saved and waited. I remember purchasing our bed frame at a local Big Lots for $39.99. I waited until the white tufted wingback headboard (not bed – I wanted the bed but a headboard was more in my budget) went on sale from Target.
That may be a silly, seemingly-pointless story to share but I think it’s important for you to know where we started. Today, our lives are very different and if you only catch a glimpse of the present, you may not know that mattress on the ground story was only 6 years ago. That just speaks to the power of financial discipline and smart money moves.
When we had little and now that we’ve been blessed with more, we have always prioritized money management.
Over the past few years, our income has increased significantly: 681% to be exact.
Here is the huge difference… the pressures and norms in society would encourage us to proportionally increase our spending: significantly upgrade our home, cars, wardrobe, vacations, where we eat, where we stay, everything about our lifestyle.
But, we haven’t.
Now, we have some nice things because we’ve learned that just like with every other area of life, there has to be some balance in finances. Overall, however, Anthony and I most recently decided to choose a life of financial freedom. Financial freedom can be described as: “you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.” source
WHERE DO I BEGIN? KNOW THE HARD NUMBERS
When Anthony and I decided to not only to manage our money wisely but also to make financial strides for our future, we revisited the hard numbers. When our finances were tight, we had an estimate of the hard numbers, like many people do; sometimes, you don’t really want to know the numbers… I’ve been there. Also, I’ve found that when you become more financially comfortable, it’s easier to “let go” of knowing your hard numbers because there is more wiggle room. I think that’s a trap. Knowing the exact numbers… seeing them on paper… that’s when the magic can happen.
NUMBER #1 YOU NEED KNOW: NET WORTH
In order to make progress, you’ve got to know where you’re at. If you wish to lose 10 pounds, you’re going to have to jump on a scale to get an accurate reading of what you weight right now, right?!
The first step in healthy finances is facing the numbers. The first number I suggest calculating is your net worth. This will allow you to gain insight into everything you have, “have” (as in own but not really) and/or owe.
Net Worth = total of what you own – total of what you owe
Your net worth is a mathematical equation of assets (ie: homes, cars, investments, etc.) minus debts (ie: mortgage, auto loans, student loans, credit card debts, etc.).
When I was looking for facts about median net worth, I came across this phrase…
“Home value, job title, car model, …. These things merely hint at how wealthy you or your neighbors are. The naked financial truth comes down to just one number: net worth.” source
There are a lot of smoke and mirrors in 2020. Net worth is nothing but the naked truth. Personally, I believe knowledge is power and for yourself (not to compare!) you need to know where you stand.
Here are a few examples I found to help you better understand how to calculate net worth if you’re new to it.
Example 1: Gina
Gina is 35 years old. She owns a home worth $250,000, and still owes $150,000 on the mortgage. Her six-year-old car is now only worth about $7,000, but it’s all paid off. She has $1,000 in credit card balances, $25,000 in her 401(k), about $5,000 in her savings account, and $20,000 remaining on her student loans.
- Home: $250,000
- Car: $7,000
- 401(k): $25,000
- Savings: $5,000
Total assets: $287,000
- Credit cards: $1,000
- Student loans: $20,000
- Mortgage: $150,000
Total debts: $171,000
GINA’S NET WORTH: $287,000 – $171,000 = $116,000
Example 2: Emma
Emma, meanwhile, is 25 years old and rents an apartment. She has a newer car worth $20,000, but still owes $15,000 on it. Relatively new in her job, she only has $2,000 in her 401(k), and $1,000 in savings; she’s paying down $50,000 in student loans. And she’s racked up $5,000 in credit card debt as well.
- Car: $20,000
- 401(k): $2,000
- Savings: $1,000
Total assets: $23,000
- Credit cards: $5,000
- Auto loan: $15,000
- Student loans: $50,000
Total debts: $70,000
EMMA’S NET WORTH: $23,000 – $70,000 = (-$47,000)
NUMBER #2 YOU NEED TO KNOW: YOUR TAKE HOME INCOME
The second number I believe is essential to know is your take home income.
Take home pay is the amount of income that you actually receive after deductions. Deductions may include federal, state and local income tax, Social Security and Medicare contributions, retirement account contributions, and medical, dental and other insurance premiums. The net amount or take-home pay is what you as an employee receives.
This is important to know because your salary and your take home income can be two very different numbers. Yet, some people spend and live with the idea that their salary = take home pay.
Also, it’s 2020 and I realize that many of us have a less conventional income than what was considered normal 20 years ago. You may have additional revenue streams. You may have a side business. You may work in a position where you have a base salary with bonuses and other variable income. You may be self-employed and not even have a set salary. The more factors, the more important I think it is to look into this number.
Just like I did with net worth… I wrote this number down on paper.
NUMBER #3 YOU NEED TO KNOW: MONTHLY EXPENSES
Let’s recap… the hard numbers you need to know:
1) know your current financial state: net worth
2) know how much money you’re actually brining home
3) know how much money is going out
Calculating your monthly expenses can be a daunting task. First off, it takes a good amount of work. Secondly, you may not want to know how much money is actually going out the door each month. I always keep in mind… knowledge is power. Financial freedom and a healthy money relationship are worth the work.
Monthly expenses will fall into one of two categories: fixed and variable.
Fixed expenses are those that do not vary with production output. The exact amounts may vary slightly but these bills are typically paid on a regular basis, such as monthly, quarterly or annually. For example, rent/mortgage, auto payments, property taxes, insurance premiums and utility bills are just a few examples of fixed expenses.
Variable expenses represent your daily spending decisions: eating out at restaurants, buying shoes, enjoying Starbucks, getting a manicures, etc. Not all variable expenses are discretionary expenses. For example, medical bills are necessary, variable expenses you may encounter.
Like I mentioned, Anthony and I have proudly been on top of our finances since marriage. However, this past year, we decided to take it to the next level. We meticulously analyzed our expenses. We took a 6 month window to get a better average of our expenses. Again, this was a lot of work but it was very insightful in knowing exactly where our money was going and how we could make simple tweaks for big results.
MAKING SENSE OF THESE 3 NUMBERS:
For us, knowing these three numbers…. and really knowing them… set the foundation for the financial strides we decided to make. We could not have taken the next steps without doing this first.
Also, I think a huge financial myth is that budgets and money management are for those who don’t have a lot of money. Speaking from experience, the more money Anthony and I brought home, the more beneficial it was for us to look into our expenses and spending because there was more money to manage. So, regardless of if that net worth number scares you or impresses you, regardless of how good or how bad you feel doing this, in my opinion, there’s no shame in the game and you can make progress that will feel good.
If this topic interests you at all, maybe take some time to look at these 3 numbers for yourself before we roll out the next post in this series.
Neither Anthony or I are financial experts. We are both just extremely passionate about going against the grain when it comes to finances. This really is a *stay tuned* ending because I have so much to say on this topic but I’ll leave it at this for the first blog post in this series.
As always, thank you for taking the time to read my posts. I know many of us come on here to grab a tid bit that can help us live life just a little bit better: whatever better means to you. Healthier finances have been a pivotal part of my life lately and I hope that through these posts, you can find that too.