Bringing the Ka-ching: Saving Your Bacon
I’ve individual results with money are often much less about the economy and much more about the way we think about money. After all, our actions are filtered through, as well as effected by, our thinking. Unfortunately, our thinking can sometimes just plain get us in trouble. In the very least, it gets us off track.
There are many ways in which that happens. Mostly these issues stem from habit, as we continue to think about and deal with our money in the same old ways we always have. Since for most of us money is such an old and taboo topic, we are reluctant to look at how to do it differently. This is one way we get trapped. We keep doing it the way we have always been doing it because we are comfortable with that. We don’t look at new possibilities.
This month I’d like to talk about one of those money thinking patterns that I would go so far as to call a money trap: Savings. I’ve been talking to people for a long time about saving money. Mostly, I run into the “I can’t save money” perspective. People focus on the scenario of whenever they have saved money something comes along and just takes it away. You know how this works. The appliance dies, the plumbing leaks, the tires go bald. Something always seems to just happen.
Like all other money issues, the way to change your perspective and therefore the results around savings is a two pronged attack. First, there are the beliefs. And second, there are the actions and habits.
I have been working with people about the belief part for quite awhile. After some time of the roller coaster of saving and then having the saving deleted, most people stop saving. Of course, there are some people who never started saving to being with. Whichever it is for you, what your brain knows is that you don’t save. That’s why it’s important to save. You need to have your brain know you do. Since this part is about your brain, or more accurately your belief, the amount you save isn’t important. The actual act of saving is what is important. Your belief needs to shift from “I can’t save” or “I don’t save” to “Yes, I save”. So the supporting action here is to just start saving something, anything, each month. And since we are in the business here of creating belief, have this periodic action be intentional each and every time. What I mean is, if you have the bank automatically put money in savings without a monthly action by you, you don’t actually have the monthly experience of saving in your head. Automatic deposits are convenient and effective. They are even elegant in a way. They just are not individually intentional, and for this game we actually want you to notice what you are doing, each and every time. You want to notice and have your brain say “Wow, look at that, I just saved. I really do this.” So, write the check, click the transaction yourself, drop the coins in the piggy bank, whatever. Just make sure it is you that is performing the consistent actions of saving.
Okay, step two coming up. This new action I’m going to suggest comes from a confusion in thinking. Let’s side bar a moment to look at the difference between how companies and individuals think about “savings”. Mostly, individuals have one savings account. Often, there is also a long term retirement account (IRA, 401K, or some other alpha-numerically identifiable entity) which is removed from my every day thinking account. Notice how that thing that is “automatically” taken out of your check somehow doesn’t “count” as savings any more? Anyway, for this discussion, most people have one savings account. Companies have two savings concepts; Long Term Savings and Operating Capital. Often there is only one savings account, the Long Term Savings one, and the Operating Capital is represented by a little goody called a Line of Credit. Ideally, money goes in and out of the Line of Credit to help smooth out the ups and downs of money in the business. In some ways the Home Equity Loan can work well that way, but, unfortunately most people don’t use one for cash flow, they use it for buying stuff.
So what does “cash flow” actually mean? It’s one of those money terms, isn’t it? Money, just like the tides, ebbs and flows. It does that for all of us. I actually refer to the times when there is less of it as the “cash ebb”. It helps me remember that there will be the corresponding flow. We tend to focus our attention more on the times when it goes out, than when it comes back, don’t we? So cash flow is simply the idea that we need a certain amount of money in a given period, say a month, and that the money may be needed to go out (ebb) before we get it back in (flow). Timing. Remember, timing is everything. So operating capital for the company is money that helps them pay money out when needed, before they get the money back in to cover it.
Individuals do this too. BUT, they do it from their savings. AND, as they do that, an emotional money trap door opens up and they fall through. Here’s how that trap door works. We have had to spend money before we had it to cover monthly bills, or to pay the property taxes, or the plumber. Fine, but that little nasty voice in our head says “see, you can never save money. It just goes. Why even bother. You know you can’t”, on and on and on. The trap door opened and you fell through, thus sabotaging your ability to “save”.
So here’s the idea. Have two savings accounts. One is Operating Capital: money to be used for cash flow, for the periodic ebbs and flows. The other is the “real” savings, the savings for vacations and other dreams. By separating the two at your bank, you also separate them in your mind.
As I’m writing, I can hear a bunch of you out there saying “that’s just great, where does she think we are going to find this money for these two accounts? We can’t make the bills now!” And you thought I couldn’t hear you, didn’t you?
Yes, it’s a challenge. But actually separating the two money ideas in your brain is the first step to changing this. You can choose to keep doing it the old way, or you can start changing your thinking and habits to move to the new place. And remember, it’s not the amount that is the important thing here. It’s the action.
How much do you need in your Operating Capital? There’s not really a clear formula. Finance people usually recommend 3 – 6 months of money. That can seem huge to start with, can’t it? Don’t start there. Start with setting up the two accounts and putting something in each one every month. Many of you are self-employed and need to pay estimated taxes. Start with putting each month 1/12 of what you paid in taxes last year. Start. Just start. And then keep doing it, and when you have to spend that all, start again. Did I mention starting?
Yesterday, while I was waiting to see my tax preparer (yes, it’s that time again, folks) there were two guys chatting in the waiting room. One of them was actually talking about how this works. He was complaining about his water bill. “Not only does water cost more than it used to, it’s both water and sewer, but even worse, they only bill it once every three months. How am I supposed to deal with that?” The answer to his question is “have an Operating Capital Savings account”. It’s a real issue. Even if you aren’t a number cruncher, you can plan to have these two accounts. Call them whatever you like. Big savings, Little savings, Short term, Long term, Necessities, Dreams. The names don’t matter. What matters is the change in your beliefs and habits. Just start.
Upcoming Teleclass:
This month’s Money Knot talked about how our beliefs and habits around savings can get us in trouble. The March teleclass goes deeper into our heads and deals with not only where all this money stuff started, but some of the ways we perpetuate it.
Teleclass: How Old Is The Money Manager In Your Head?
$ Are you ever curious about just where all your patterns got started?
$ Do you ever notice that you seem stuck when it comes to money?
$ Ever wondered why you just can’t seem to shake those old money habits?
$ Do you ever feel lost when it comes to understanding your money practices?
There are some real reasons for these issues. Once you have more clarity around how money works in your head, you will be much better equipped to get unstuck and move toward different results.
Date: Wednesday, March 17th
Time: 10:15 a.m. to 11:15 a.m. Pacific (1:15 p.m. to 2:15 p.m. Eastern)
Registration: www.sensiblecoaching.com
Fee: FREE your only cost for this call is your regular long distance call charges.
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The Money Knot Story:
In case you are wondering why this is called The Money Knot, here’s the story. I’ve always been fond of Celtic knots, and you notice I use one as my logo. From my perspective, there are several things about these knots that relate to our money journey. One, you can see the whole knot; nothing is hidden, it’s all revealed. Two, the knot has no beginning and no end; it’s an ongoing, dynamic process. Three, the knot that I have chosen is a bit askew; our maneuvering is often out of the box.
Our money lives are like this knot. They are a visible maze that is intricate and sometimes challenging. Sometimes we get stuck in a corner; sometimes money is confusing, embarrassing or even scary. And yet the knot is always there. It’s a never ending relationship.
Together we go into your knot, and I help you to understand and maneuver through the knot. You will get familiar with the territory, know your way around, understand the twists and turns. Together we will make sense of where you are on your own personal money path and help you get to where you want to be.
Happy New Ka-ching in the New Year!
Shell Tain, pcc, cpcc
$ensible Coaching
503.258.1630
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