As I grew older, the allowance wasn’t enough. I needed more money, so, ever the entrepreneur, I hired myself out as a babysitter. Thinking back, I’m sure my sister and I had a lock on most of the neighborhood and we both did well.
As adults, our allowance is our paycheck. Most of the time, it’s a set amount, but we may have the option for overtime work, commissions or a bonus. Despite how much our income increases, it seems we always need more as we age to make ends meet.
Here are three strategies you can use to get a handle on your money and help your allowance...ahem...paycheck go farther.
Move forward by looking backwards
“Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to."
"I don't much care where –"
"Then it doesn't matter which way you go.”
― Lewis Carroll, Alice in Wonderland
Imagine being dropped off in the middle of nowhere, armed with a map that directs you to a place you’ve never been before. You begin the trek confident, “This shouldn’t be that difficult, I can figure this out on my own!” you think, as you slide the map back into your pocket. After a few hours, seemingly making progress with every step, you realize that you’ve actually gone in a circle -- or worse, backwards.
Definitely not an ideal situation, but unfortunately many of us are doing exactly that in our relationship with money. Don't confuse activity with progress. For example, opening a new credit card to pay off two smaller ones creates movement, but not progress. The reality is that you have stayed in the same place.
Any driver can tell you that the rear view mirror is vital. That’s because looking backwards can help you avoid problems as you move forward. Once you know where you’ve been, you can see the places you don't want to return to.
Budgeting is key to moving forward. When creating your budget, you can 'look backwards' to see where you have spent money in the past and identify the weak areas. That information will give you a basis to create a 'forward looking' budget where you can assign your money to specific categories and create your spending goals.
Our hyper-consumption culture makes it easy -- attractive, even -- to get caught in a cycle of spending. Statistics show that many consumers have little grip on their personal finances, and even less are aware of what contributes to their negative spending habits. Dave Ramsey cites that 78% of Americans live paycheck-to-paycheck.
My years in the financial advising industry have taught me that individuals who subscribe to this philosophy typically fall into one of two categories.
1.) Those that desire a truly abundant life and desire to change, they just lack the knowledge and/or willpower.
2.) Those that are convinced that living in debt is just “the way things are” and no one truly has things figured out financially, therefore there is no need to be concerned or worry about their consumption.
Those in the latter category will continue to “fake it”, and “happily” proceed with overspending until they lose complete control of their finances. Not much I can do there, until they realize there is a problem. Fortunately for those in the former, they understand that a change is necessary, they just need to act with intention.
To be intentional, you must start by identifying what you want. Obvious, I know -- but putting it into practice is a little more challenging.
It's easy to get caught up with the day-to-day, but I want you to stop for a moment and really think about where you want to be in the future. Think back to your childhood and remember how much fun it was to dream about what you wanted your future to look like. Being intentional is basically that, with the added step of acting on those dreams.
Now, what I recommend is to formalize this process by writing down your dream, either on paper or saving it on your computer. This ensures that your goals are listed somewhere for you to reference later.
Additionally, it’s easier to be intentional when you eliminate the messaging that encourages you to buy, buy, buy.
Turn off the TV (or limit the time you spend in front of it), cancel the email subscriptions, stop the junk mail, avoid shopping triggers (like the mall or Target), quit looking at those great home projects on Pinterest, and fill your life with other (read: inexpensive or free) activities.
Now, I’m not saying that you have to (or should) eliminate all of these at once, however you need to be aware of moments when you’re influenced by outside (marketing) voices and have processes in place to tune them out.
Make it a Game
Quick, think of one of your favorite games! What makes it fun? What makes you want to continue playing it, time and time again? Got it?
Ok, now think about how the answers to those questions can be used in real life?
I’ll give you an example. Many people are familiar with the debt snowball -- the debt reduction strategy where you pay off debts in order of smallest to largest, gaining momentum as each balance is paid off. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
The reason that so many people (millions to be more precise) have had success with the debt snowball is because the payment strategy provides a ‘game-like’ experience that offers instant feedback on progress, encouraging individuals to accelerate their debt reduction.
The same could be said for trying to increase your income. If you’re an entrepreneur this might be a fairly simple challenge as you’re innately wired to try and improve your earnings month-over-month. But that doesn’t mean that corporate workers can’t join in on the fun!
No matter your employment situation, challenge yourself to see if you can earn more money this month than you did last month. Or measure it quarterly.
Think of your income as the "score", and any additional money that you bring in is your way of racking up points.
A word of caution, though. Remember that while you’re trying to "win" at the game of personal finance, you have opponents on the other side that are trying to beat you, as well. In this case, your opponents are fees and interest from credit card companies, slick marketing campaigns, and in some cases, professionals that are supposed to be looking out for your best interest. They are all unified in trying to separate you from your money, but as long as you're diligent in making sure that it doesn’t happen, you'll be fine.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.