I know, I know…. such a controversial topic to talk about in public! 😱
Just check out what comes up when you “type talking about money is…” into a Google search bar. 👀
But how many times have you wished you could talk about this “taboo” topic freely? Personally, I don’t understand why we can’t talk about money (especially one’s relationship with money) freely. If we can talk about our romantic relationships, and other human relationships freely… then why can’t we talk about our relationship with money?
Money is an important topic. Did you know that money matters are one of the main causes of mental health problems? The Money and Mental Health Policy Institute in the UK has this to say:
“Mental health and financial problems are often intricately linked. One problem can feed off the other creating a vicious cycle of growing financial problems and worsening mental health that is hard to escape”
This is part of the reason I want to “normalize” talking about money. Over the next few months, my posts on Career Queens Blog will aim to help you understand your relationship with money. They will also aim to help you find a better balance between this important relationship, and other important facets of your life.
Income > expenses. Simple! Right?
When it comes to one’s personal finances, there are two key things you have to keep your eye on. What you earn (easy part), and how you spend your earnings (tricky part). Money management is all about striking a balance between those two. Specifically, your income should be greater than your expenses.
Well, it’s not so simple. But we’ll be getting into it in this blog series.
First things first: What is the current state of your relationship with money?
Here are a few steps I took a couple of years ago to better understand my relationship with money.
1. Collate your financial records for past few months
Three months should give you a good picture. Collect all your financial records such as bank statements, credit card statements, any cash-based activities etc. If you use cash for most/ many of your daily transactions; I suggest recording your cash-based transactions for the next month to complete this analysis. The main objective of this first step is to understand your income and expenditure patterns — the basis for personal finance planning.
2. Understand your spending patterns
As we know, personal finance management is based on two items: income and expenses. I would give more prominence to analyzing one’s expenses. That’s because, in general, people have more control over their expenses.
The main objective of understanding your expense patterns, is to identify your “unavoidable expenses” and “manageable expenses”.
- Unavoidable expenses: Expenses that you have to bear every month at a (more or less) fixed rate. Examples include mortgage repayments, rent, health insurance, utility bills etc. Unavoidable does not necessarily mean that we cannot change the frequency or amount, but it is reoccurring in similar intervals, nevertheless. We will talk about how to manage this type of expenses in upcoming posts!
- Manageable expenses: Ad hoc expenses that don’t necessarily reoccur weekly or monthly. Examples include, expenses related to entertainment, dining-out, shopping (non-essential items), holidays etc.
3. Decide what expenses to prioritise
Once you have completed step 1 and 2, you are in a good position to understand your spending patterns and identify what you expenses you should prioritise each month. What percentage of your income do your unavoidable expenses make up? I advise setting aside the relevant figure for these expenses. As soon as your income lands in your bank account, pay your unavoidable expenses. In a future article, we’ll go deeper into ways that you can manage your manageable expenses better. Fun!
4. Determine your relationship status with money
If you’re at step 4, you’re ready to declare the status of your relationship with money.
Does your analysis reveal that you have a tendency to spend more than what you earn on a monthly basis? Is this primarily because you have not picked up any saving habits over the years? If “YES”, then I’m sorry to tell you that your relationship with money is very complicated!
But, you’re not alone in this — the majority of the world’s population falls in this category! In fact, my relationship with money was very complicated only a few years ago. This is ironic, as I’m an accountant by profession. I’m sure everyone expects an accountant to be good with money, but believe me… I was not!
The good news is, I learned that it only takes careful planning and persistence to turn your complicated relationship with money into a healthy one. If I can do it, so can you!
“We need therapy”
Do you spend slightly less than you earn, and save little-to-no-money? Is your saving habit getting marginally getting better (or worse), month on month? Again, I’m sorry to say this you, but you have a not-so-good relationship with money. The great news is, you’re working on it. With a bit more attention and careful planning, you can turn your not-so-good relationship with money into a healthy one in no time.
“We’re Instagram official”
Are you a superstar who consistently spends less than you earn? Are you in the habit of setting savings each month, and possibly even investing those savings? If yes, then I’m delighted for you! It would seem that you have a healthy relationship with money (assuming it’s not a case of “Instagram vs. Reality”!). It could be worth talking to a money manager or money coach, just in case, you relationship can be improved!
The point of the Matter is…
Let’s be honest, there is no universal standard for your relationship with money. It’s all about how you perceive your relationship with money. But, if you are living above your means, or relying on financial institution(s) and/or individual(s) to finance your lifestyle… your relationship with money will likely drag you down some day.
I don’t want to see that happen!
We should all take control of our personal finances before we get to “dumpster fire” status. I hope you agree.
You do not need a professional financial adviser to get on top of your daily money management. But you do need to invest time and commit to analysing your financial affairs, understanding your position, and planning ahead. If this is something that sounds interesting to you… I encourage you to keep reading future posts in this series. Until next time!
Chandinie Gamage is an accountant by profession who never worked as a mainstream accountant. At the moment she is working in Risk Management at a US Bank by the day and being a volunteer to shape Ireland’s youth with Foróige as well as helping professionals around the world providing personalized career advice by the night.