Take Control of Your Finances
Rachel Pauli: Welcome to today’s webinar, Take Control of Your Finances! My name is Rachel Pauli. I will be the host for today’s webinar. Our presenter today is Dr. Phil Quinn.
Dr. Quinn is the Chief Psychologist at South Shore Mental Health Center, a psychiatric consultant at the University of Massachusetts Medical School and is a corporate consultant and trainer.
So without further delay, Dr. Quinn, I will turn things over to you.
Dr. Phil Quinn: Well, thank you very much Rachel! Today we are going to be talking about taking control of your finances, clearly a very important issue that all of us should be familiar with. We are going to talk about a number of different things in our presentation today, but we will talk a little bit about developing a budget, conducting a family business meeting, and identifying some tips for discussing finances.
But I would first like to ask everybody, do you actually have a budget? Do people today even have financial goals? Without a goal, we never really know if we are heading off in the right direction. Do you and your partner have a personal financial mission? And finally, do you experience financial stress that we all experience on pretty much a regular basis in American society today?
As we start today’s presentation what I would like you to do is look at your personal or your family finances from a completely new perspective. Many of us run off our own finances with a theory that we can out-earn our expenses. This endless rush to have a lifestyle that is above our means often creates a great deal of stress.
As George Washington once suggested, “We must consult our means rather than our wishes.” The financial stress that we experience can be endless and really overpowering. As a result, it’s important to get our finances under our control, not somebody else’s control, but our control.
My suggestion today is consider running your personal or family finances really like a small business. Small businesses are successful in part because they control their finances. They know where their income is coming from, and they try to control their expenses.
It’s important for us to remember that the more we control our finances, the less stress we will have. Too much stress makes us feel that we are living on a financial cliff, and at any moment we can tumble over that cliff.
Much of our inability to control our finances is more about the psychology of money than money itself. We often get caught up in a very difficult cycle where stress impacts our spending and saving. We experience that initially spending reduces stress, so if I am feeling stressed, I go to the store and buy something, what happens, I feel better immediately. But the long-term issue is different. In the long-term, spending, especially spending when we don’t have the money to back it up, actually increases our overall stress.
But if we think about running our personal finances like a small business, we realize in many ways it is like a business. Like a small business we have income, expenses, and even a product. Our products are our children, our personal happiness, and activities that we enjoy. Most people run their homes and personal finances on a catch-as-catch basis. In some ways it’s the American way. We purchase things before we can afford them.
In the past, and this is coming back a little bit, we used delayed gratification. People would look at items that they wanted to buy and lay away, and when they could afford them they would go back to the store and finally purchase them. Over the last 25 years, and this is changing a bit too, people have used instant gratification. We want something today and what do we do, we put it on our credit card. Unfortunately, that credit card comes with high interest that can be very overwhelming for people.
Using the instant gratification and keeping up with the Joneses, we feel good right away, but ultimately, we cause stress for ourselves, and this stress can be overwhelming. Maybe many people experience sleepless nights worrying about how they are going to pay their bills. We can eliminate sleepless nights, or at least reduce them and take control of our finances. That is very important.
During our presentation today, I would like you to think if you have a family financial philosophy. For example, never pay credit card debt or never pay credit card interest. Never buy anything you can’t afford or we want to live debt free. Business meeting can often help with that. When we are conducting a business meeting, what do we do, where do we start, the best place to start really is the beginning, conduct a weekly, monthly, and annual business meeting.
Just as businesses have staff meetings, we need a business meeting. What we have to do is select the people who are involved. For example, if you are married, choose your partner, your spouse. If you are in a long-term relationship, choose your partner. If you are not in a relationship, it’s still important to have a business meeting, meet with those who share your expenses, a roommate, et cetera, or a parent, or create your own sole proprietorship. Even if you are living alone, you want to manage your finances as if it’s a small business.
If you have children, consider inviting your children to a meeting a few times a year. Children learn about their finances by watching their parents. If parents control their finances, they will learn that as well.
After you have established a business meeting, what you want to do is select a Chief Financial Officer and give that Chief Financial Officer a one year term. So what does a CFO do? CFO is responsible for paying bills and conducting weekly meetings. The CFO also reports up-to-date financial situation. For example, the bills have been paid, or we have emergency bills, et cetera.
Weekly business meetings are always held weekly. If we start skipping or not scheduling meetings, it’s often because we want to try to avoid an issue. And remember, avoidance is not a business strategy.
Also, we want to have those meetings even if there is not a lot going on financially. If there is no financial news, still meet weekly, even just for five minutes, so the CFO can report that we are on budget, bills are paid. That positive reinforcement can be very important.
In the weekly meetings, address emergency issues first. Discuss special or difficult financial issues, such as health insurance that we may have to buy or other expenses that we hadn’t planned for.
Adjust your budget or goals as necessary. If we adjust our budget on a regular basis, we avoid serious issues, and that’s important, take control of it. For example, if we have to buy a new set of tires, we may have to make a decision to lower other expenses, like entertainment expenses, so we eat in or don’t go out for a couple of weeks or a couple of months. While this may be painful, it helps us stay abreast of our financial situation that really occurs on a regular basis.
In the annual business meeting, we review the previous budget. And at the same time, develop a new budget. Determine new and short-term and long-term goals. Those change on a regular basis, and that’s important.
Elect a new Chief Financial Officer or we can reelect the old one if they did a good job last year.
Always remember to reward yourself. What do you get for a year of good financial management? It may mean you can buy something. It may mean you can take a vacation. But it is important that you reward yourself. We all respond a little bit better when we have been rewarded for our efforts. And that’s important to remember.
To avoid the financial cliff it’s important to develop a budget. Fortunately, there are numerous websites that will help you develop a budget. But don’t be intimidated, this is not high math. All it takes is a little adding and subtraction, some simple multiplication, simple division, and we can develop a budget. In fact, you’re allowed to use a calculator, so don't be intimidated by what's going on.
Before you start a budget, brainstorm. That’s an important aspect is take a look at, what is your budget, what are your expenses, et cetera. Understand your personal style. We all have a different style. Are you a saver? Are you a spender? It’s important to recognize your strengths and weaknesses and develop a budget, because those will appear during this financial year.
Understand the emotional meaning of money, and that's important. What does it mean to you? What does it mean to you partner? But also rely on data. Don't make it up, you have the data.
For example, if you own a home, what’s the mortgage payment? It’s the same every month. If you’re renting, what’s the monthly expenses? Review spending for the past 6-12 months. That will give us a clear indication of what’s out there. Sometimes we have to calendarize. For example, you may want to take a look at the heating bill. Heating bill in the winter months may be higher than the summer months. You want to calendarize these things.
Ask yourself, where does my money go? Some little insidious things day to day, stopping for coffee, or buying lunch everyday, often that are budget busters.
Eliminate emotions; this is a very emotional issue for husbands and wives and partners to talk about. Eliminate emotions from our presentation. It’s all about the numbers.
And remember, this is an ongoing process. We develop a budget and things may change. People get raises. People lose jobs. So a number of aspects impact us. So don't forget that without that and the ability to change things, we can fall behind.
Expenses increase, even salaries increase. In order to be successful however we have to have goals. So discuss your long-term goals and your short-term goals. Short-term goals may be paying off debt; long-term goals may be retirement, children’s education expenses, a trip to Europe next year.
Don’t forget emergencies and to budget those in, because we all know they occur. It may mean the water heater goes, we need new tires for the car, a number of things that are really hard to anticipate and hard to control.
Eliminate bad debt. Bad debt can be, not only a budget buster, but can overwhelm us. That’s important to recognize that if we feel overwhelmed, what are the things that happen? We tend to bag or not do our budget.
One of the things to think about to help us develop a budget is the acronym SMART. So for example, our goals in our budget should be Specific, Measurable, Attainable, Relevant and Timely, SMART.
For example, let’s assume we want to save $1,200 a year; that seems like a lot of money, but if our goal is to save a $100 a month or $25 a week, and we monitor that over the year, one of the things we find we will have that $1,200 at the end of the year. So it’s Specific, meaning that we want to save $1,200. It’s Measurable, every week I can determine whether we are saving $25 a week. It’s Attainable, meaning it’s something we can actually accomplish. It’s Relevant, because it’s money for ourselves and we can measure how we are doing against Time. So if you are having trouble setting goals use the SMART acronym to help you.
As I mentioned, develop short and long-term goals, include fun goals, going out on dates with your partner, going on vacation. If we do not include those goals, we run into financial fatigue, and we often give up, and that’s important to recognize.
Always include the long-term goals. I know if you are in your 20s and 30s you are not thinking about retirement, but one of the things we realize is what we save today will be greatly helpful in the future.
It’s also important to avoid financial fatigue. Worrying about a budget day in, day out, month after month can be very difficult for most people. So be creative, for example, and understand yourself. If you are the type of person that has difficulty maintaining a budget for 12 months, vary that a little bit.
For example, if you overspend one month, have an austerity month. Most of us can go a week or a month without stopping for lunch, stopping for coffee. So use austerity months to help you get back on track.
The other thing to realize, some people have difficulty even a week, so you may want to establish, for example, a no money Mondays, no money Fridays, so you may overspend a little bit on Tuesday and Wednesday, but you are not going to spend on Monday and Friday. So be creative with your partner to come up with plans so you could be successful managing your budget.
Always watch out for insidious budget busters like credit card debt, stopping for coffee every single day, buying your lunch every single day. It doesn't seem much if you spend a couple of dollars for coffee, a couple of dollars for lunch, but day in and day out that can add a lot and eliminate our savings.
Discussing our finances is very difficult. You want to eliminate emotions and look at the numbers; it's all a matter of what our income is and what our expense is. The only options we have are to increase our income and that's always something that can be discussed, or decreasing our expenses. There are no other options to that.
Be honest and truthful about your spending. Meaning, don't spend money if you haven't told your partner, but it’s important that in your budget that everybody gets an allowance. We all work hard and we deserve to spend our money, but it has to be within a budgetary format.
Communicate! Communicate! Communicate! Talk about this issue, and if we talk about it and we talk about it early enough, we gain control.
Emotionally developing a personal financial plan takes hard work, patience and perseverance. As John Adams noted, “Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” So some of the things that’s important to remember is when you are thinking about your personal finances, think about running it as a business. We have all attended staff meetings and we discuss a budget all the time and most of us are pretty effective at being unemotional when dealing with that.
So that’s important, you want to understand that this can be an emotional issue, but we want to pull that out. Develop a budget and stick to it. That means it has to be a realistic budget. It can't be a pie in the sky budget; it has to be a budget that you are going to stick to.
Set very realistic short-term and long-term financial goals. We may not be able to save thousands of dollars a year, but we can start off by saving a few dollars a week, contributing a little money to our retirement, contributing money to our children's education if needed, and ultimately, over time those will build up and while they are building up, it will increase our financial security.
Finally, when discussing finances, be sure to eliminate emotions. Focus on the numbers. Because we have expenses we are not good or bad people, but people with expenses. So if you find yourself getting emotional, take a moment, take a step back, take a deep breath and look at the numbers. We are always able to work with the numbers to make our lives a little bit more satisfactory.
And finally, understand the developing of budget and implementing a budget is a process. That's why it's so important to meet weekly so we can manage the budget on a regular basis before it overwhelms us. As we enter the New Year, it’s a good time to set up a budget, but it’s also a good time to set up a budget no matter what time of the year it is, because if our expenses keep rising and we keep falling behind, we won't be able to deal with that effectively.