Since the release of the blog, a few friends have reached out asking where they should put their extra money, should they use CDs based off my previous blog, what would get them the most return, offered other better solutions, and asked about other investment vehicles. The answer for each person was always different.
The questions I ask myself, Why is it that some of us struggle with personal finance and others do not? Is it not just simple math? If you read personal finance blogs and articles it seems so simple. You could break it down to just a numbers game, income minus expenses and keep it moving. Are we saying that some people don’t know that 2–1= 1? I have said this before in previous posts, finances breaks down to something deeper than just math. It’s psychological and emotional when you think about why you save?
- How intent are you on hitting a goal? Do you feel panic? Stressed? Anxious? Relaxed?
- Were you raised with a lot or not a lot and are you making up for it now?
- How do you associate with money success? Material things? Big House? Net worth?
- What makes you feel financially secure? If you were to lose your job tomorrow, are you okay? If the market were to tank, are you okay?
- How fast do you want to get there? 1 year? 5 years? 10 years?
- What’s important to you right now? Getting out of debt? An emergency fund? A house? Maxing out Retirement?
As I was listening to another financial podcast telling me the same thing, I realized you can have all the finance knowledge in the world, but it’s more about how you take action on those concepts you’ve internalized. This is why I feel everyone’s financial journey will be different.
I recently stumbled upon a book at the library called, “Financial Intimacy” by Jacquette Timmons. Those of you who are in a committed relationship and want to work on your financial disagreements with your partner or strengthen the financial relationship you both share, I highly recommend walking through the exercises in the book. Timmons’ book challenges you to dig into your past and understand your perception about money. It’s healthy to understand you and your partner’s similarities and differences with money. It was an eye opening experience for us! We realized we have opposing views of money but it explains our behaviors on the way we both handle money. It works great for single people too! She also has great resources and a podcast that focuses on behavioral finance.
There is so much financial advice out there and you can easily get inundated with different types of accounts and financial terminology. This can easily confuse people. If you’re like me, my type A personality and anxiety just wants one answer, one plan, and one number. With finances, it depends on your goals, your personality and behaviors, and what I have just newly discovered: your level of financial security.
You almost have to look at each investment vehicle and decision with questions about does this work with the type of person you are, identify your weaknesses, your strengths, and how does this method help or hinder you? Sometimes you don’t know until you do it and realize that strategy didn’t help me reach my goals!
A few examples of how each of my close friends handle money differently based off of their behavior and how knowing themselves changed their financial strategy:
“I can’t get myself to track every single purchase for a budget.”
This friend used a variety of budgeting tools and realized he just can’t track his money every day for every purchase. It just doesn’t fit his lifestyle, so instead, he sort of uses the cash system, but in today’s world the Apple Pay Cash system. He sends his Apple Cash card $50 every day to use and when it’s gone it’s gone for the day but the leftover money rolls over to tomorrow. The next morning, he wakes up and the first thing he does just like brushing his teeth is to transfer his $50. He created this system for himself because he wasn’t used to getting paid monthly vs bi-weekly and had to create different measures for himself.
“I try to save, but I keep dipping into my savings.”
This friend had a hard time saving. Every year, he would miss his target. The problem was that his savings was shown to him every day right next to his checking account and it was just too easy to transfer money back and forth. He made a few tweaks to his strategy. He moved his savings to an online bank separate from his checking account which made it harder to withdraw, paid himself first, and he used CDs as a way to lock them away and create a monthly habit to force him to save. In his case, CDs was not used as a high return vehicle, it was used as a method to save. So you’ll have to understand these differences. Are you someone who can’t save unless someone puts a lock and a penalty on it?
“I need visual diagrams & puzzles to motivate me to hit my financial goals!”
Personally, when I was paying off my debt, I needed a visual diagram. I am a visual person when it comes to learning information and internalizing it. I had to see a bar chart everyday of my progress, so that I could feel accomplished with each filled-in bar while constantly reminding me to stay focus and re-work the plan if I got off target. I also love puzzles and games, so when you put challenges like “Can you max out your 401K, Roth IRA, and HSA in one year?” I am constantly trying to figure out a way to do that with my income and budget! And, I love visual signs at my desk like, “You have as many hours in a day as Beyonce, make shit happen.”
Starting your financial journey…
The most important thing is figuring out how bad do you want to hit these goals and understanding your behaviors, past, and comfort with financial security. Take in all the financial tools you know and go shopping! Well sort of, figure out what works for your habits and emotions. Even if you read that someone says use excel to track everything and you’ll be fine, it doesn’t mean that is going to always work for you!
Different examples that show how the guidelines can change & how your next financial move is shaped by how you react to money based off of your level of financial security:
“I want the highest return.”
This friend is pretty much a boss in her career, a self-made lady. She will receive big payments depending on the month and is always looking for a safe place to put the extra income. She’s still not out of debt, loves the nicest things, owns other financial assets, but she has always been hesitant about the market. Her debt isn’t crippling, her needs are met, goes on luxury vacations, and her focus is growing her business, so her financials goals are shifted a little bit. She puts most of the money back into her business but she also wants to diversify and put her money into something that will give her a high return and bring her closer to her financial goals! Since she’s not using this money for savings, she wouldn’t need a financial vehicle that she needed to access right away. She decided to work with a financial firm to start investing and only set a small portion of her portfolio in investing to test the waters. She can also ask herself, how involved does she want to be in investing? Do you want to use a financial advisor? Do you want to put your money in high-risk, high return or low-risk, safe-return? She felt comfortable using a financial advisor to manage the investment and attempt to get her the highest return. I asked for her to reevaluate if that financial advisor is getting her the best return with the market including his/her fees, but I was proud that she started her journey to investing, better than no action at all!
“I hit all my financial goals and I have money sitting around, what should I do?”
This friend has lots of disposable income. This friend approached me about a huge chunk of cash that she was sitting on and how to best use it. This girl is amazing at saving, she hits all her financial goals, very ambitious, not super concerned about money or financial security at the moment, so it really is just extra! She would do great with the stock market because she’s willing to ride the ups and the downs for a better return than what she’s getting from her traditional savings account and she won’t need access to the money right away. She can even go further in asking herself, does she care if she loses 20% of her money or is she only comfortable with losing 5% of her money, this would also help her choose if she wants to enroll in active or passive investing, trade stocks regularly or put them in mutual funds, or settle for low-cost index funds.
“I am saving for a house, where should I store the down payment money?”
This friend is very financial savvy, but we bounce ideas and I learn a lot from him! He’s very diligent at saving and hitting his financial goals! His needs are met, no debt, has an emergency fund and is ready to buy a house. He’s been saving and slowly building his down payment. He wants the biggest return as much as possible but with low risk since he may be buying a house in the next 5 years. The stock market may not be an option for him as he may lose a good portion of that money within 5 years, so he may be better off with CDs or as he chose Treasury Bills, since the tax situation is much better for Treasury Bills than CDs.
If you’re still struggling with money, I challenge you to dig deep into your relationship with money! Watch your behaviors. What makes you spend? Why do you save? What does financial security mean to you? What is your next financial goal? Short term or long term goal? What matters to you? What will matter to you in a few years? Make these goals a part of you vision board for the new decade, 2030!
Did you grow up in a household where money was tight or abundant? Are you living paycheck to paycheck? How does it make you feel? Do you feel that 1 year worth of salary saved is what you need to feel secure? Does paying off your debt make you feel less worried? Some people are okay with a little bit of healthy debt. What do you need to retire?
Ask situational questions! If you lost your job tomorrow? If the market tanked? If you had an accident or hospital emergency? How do you feel about your financial situation if these situations were to occur?
Work towards your dreams. If you’re financially secure at this point, start investing on your passions: charity, fine art, a start-up, a family or friend’s project, a boat, a rental property, or a beachfront/vacation home.
As for myself, I am still trying to figure out how my personality weaves into my financial goals! It changes every year! But I’ll never forget the day I graduated out of “Security & Safety” (graphic below). Chris used to tell people, “Pay Day was the happiest day in our household!” Since we were trying to get out of debt, save, and pay bills we were so desperate for pay day every week! Then, we finally got to a point that when pay day came it was never really mentioned and we would casually find ourselves forgetting about pay day! That to me was how I wanted to feel with money, not so desperate to need it! That was my level of financial security. Share your tips and financial discoveries, I would love to hear them!
