The first rule of sound personal financial management is to spend less than you earn. It sounds really easy and makes sense… so why are so many of us in debt?!
In fact, if it were that easy, most of us would be millionaires in our 30’s and 40’s.
To begin to understand why it is not so easy to spend less than we earn, have a chat with your grandparents, or someone else from that generation who love to talk about the “good old days before computers and the internet“, you could learn something quite fundamental about financial management.
We are blessed to have a grandmother who was born in the late 1920’s and who is still with us. She has seen a lot of change in her life time, and I asked her how the family managed their money. To cut a very long story short (talking a lot runs in the family) this is what she told me.
“My father would come home from work each week with his pay packet and sit with my mother at the table and he would hand over what was left over – after he had taken what he wanted. It was up to my mother to pay all the bills from what she had left. She would carefully divide the cash up and put into the various jars for rent, food and other bills. My sister and I would anxiously wait to see if there was a coin or two left for us, most times there wasn’t but sometimes we were lucky. It wasn’t an easy life, we didn’t have much, but my mother always managed to put food on the table and shoes on our feet.”
“When we got married and had a family, your grandad and I followed the same system but this time instead of putting cash in jars, we used a bank account.” Then we drew money out when we needed to.”
So, what can we learn from this little history lesson?
- The system was simple, cash came into the household and cash went out.
- The family had a ‘banker’ who was in charge of the finances.
- Grandma (and her mother) knew exactly how much money they had at any one time and where it was being spent. In other words they had a plan and they stuck to it.
How can we apply this thinking in our age of electronic banking and credit cards?
First of all, we need to understand why it is so easy to spend more than we earn and yes, credit cards, interest free deals and the like do get most of the blame.
Our brain doesn’t help either. The brain loves pleasure and let’s face it, buying nice things from food to gadgets to cars is very exciting and enjoyable. Our brain goes, yes, yes, yes, buy it! And credit lets us do it even though we don’t have the money right now to pay for it.
So,… the pain of paying is separated from the pleasure of buying.
Secondly, in our wonderful world of technology, we generally don’t see our hard earned cash. It goes straight into a bank account, and we use various cards and electronic means to pay for what we want.
We no longer have the same awareness of money (spending or earning) that they did in our Grandmother’s day (this is called abstraction of money by the way).
Electronic banking means that transactions have become easier but the awareness has faded.
By being more aware of your earnings and spending, you will be surprised how your behaviour changes with your money once you have a clear Focus on what you want and set out to achieve it.
Eating unhealthy foods and not exercising is unanimously understood to be a foolish combination of lifestyle choices, but a great many of us still do it. The same can be said of money.
The sooner we equip ourselves with the basic rules to overcome our inability to make good choices and Focus – even when we’re fully informed – the better off we’ll all be.
Our programmes are designed to help you understand why you do what you do with your money and how to change not only your behaviours, but your mindset as well.
If you want this year to be different, talk to us about making changes that last.