There seems to be an assumption that if someone’s in the banking industry, for say, twenty years that automatically makes them financial geniuses. Contrary to popular belief just because one majors in Economics with a concentration in Finance doesn’t by definition make them the next Warren Buffet. I don’t spend my weekends pouring over financial statements or annual reports. And I don’t have the latest stock tips so don’t ask. The fact is I have my own financial Buddha and every time the stock market nose-dives I call him asking if I need to start prostituting myself yet.
Making a lot of money doesn’t mean you’re smart with money.
I have been laid off three times in my career and twice with the same company. I’ve seen my income move progressively higher over those years and watched it then drop by quantum amounts over night. Regardless of what people say, making boatloads of money doesn’t imply financial suaveness. Some of the biggest income earners I know are also financial catastrophes; ever dollar they make they spend and after the bills are paid, if they get paid at all, there isn’t enough left to rub two nickels together even if they looked under the couch first.
While I may have had a diploma that says otherwise, I have not always been astute with my own money. That was until ’07 rolled around. As the financial industry started its collapse I found myself in the unenviable position of working for public enemy number one in the mortgage scandal. The prior six years had been a non-stop party and the money was rolling in. Yet it seems Sir Isaac Newton’s law of gravity applies to more than just apples. Those of us who thought this gravy train couldn’t be stopped, woke up one morning to find that not only did it stop but it was laying in a smoldering heap on the side of the track with human remains scattered all around. And I was one of the victims and found myself out of work.
As I scrambled to find my way out of the train wreck I soon realized that salary-wise I wasn’t in Kansas anymore. There were more candidates than jobs and employers were getting talent on wholesale. The job I did find paid less than ½ of my previous income yet my bills, child support, and mortgage were all pegged to that higher amount. As hard as I tried otherwise bills don’t stop because the income does. What then does one do in this situation, file for bankruptcy, get a second or third job, move to Tunisia?
Since none of those seemed suitable options I dusted off the mental file cabinets I’d stowed away from college and started working on a plan. I soon realized I only had two choices (A) I could either earn more money or (B) I could spend less money.
If I went with option (A) I’d need to earn $2 to do the same thing that (B) saving $1 would accomplish. (That pesky thing called taxes is such a downer.) Since working at McDonald’s would have seriously cramped my dating life I went with option (B). But where do I start cutting back? Before I could answer that question I had to know where the money was going. Each month my bank statement showed it heading out the door but I didn’t know exactly where or why. I had to find out what I was blowing my cash on.
You can’t be financially independent if you spend more than you make.
It would have been no less awkward if you’d told me to kiss a dude, yet I started tracking every single dollar I spent anyway. Not wanting to be sophisticated I ignored the multitude of software programs (many of which still require manual inputs) and decided to make it as painful as possible. I created an exel spreadsheet with each day and month listed and included spending categories. For all of ’08 if I spent .25 for a pack of gum or $63 for a dinner out I logged it. Over time my spreadsheet became more swanky soon adding to it colors, graphs, and tables (I did major in Economics) until I had it where I wanted it.
But the real question would be the results? Within 90 days I was able to find $800 per month in savings, for no other reason than keeping track! When you start keeping track you discover you really don’t need that $5 latte as much as you thought. After I had enough months of spending history to create an average (usually three) I was able formulate a budget and then things really got going.
I know that had I not taken this action when I did I’d have suffered the same bankruptcy and foreclosure problems many of my former colleagues did. Even today, four years later, I still use the same spreadsheets. It’s become such a habit that it’s almost an obsessive. If I buy a cup of coffee I won’t be able to sleep that night until I add the expense, it’s that bad.
Was it hard? Absolutely. And strange, awkard, and sometimes it felt stupid but in the end it was completely worth it. Let me assure you that if you find yourself in financial chaos there are alternatives to what you hear from your friends.
It isn’t easy and it doesn’t happen over night but it does work.
(If anyone would like a copy of the tracking template, please shoot me their email address and I’ll forward a virus free copy)