Session 1: Overview (Financial Roadmaps and Goals)

The whole managing your finances thing can seem incredibly intimidating sometimes. A lot of people I know, who are very bright and very savvy and can model out a billion dollar deal no problem, sometimes act like ostriches when it comes to their personal finances and stick their heads in the sand. It doesn't have to be like that. If you can break everything down into basic concepts and ideas that you can relate to, suddenly everything becomes less daunting and you may surprise yourself with what you find yourself capable of.

For example, when it comes to saving and budgeting, I sometimes imagine myself as a squirrel. No, seriously. It makes the whole concept seem so much more intuitive. Money is kind of an abstract concept to me, so when someone says "You need to save for retirement now," it's too vague and too far in the future to really make an impact. If, however, I think of money as acorns and old age as winter, it gets a lot easier. "You need to save for retirement now" equates to “Winter is coming” and it suddenly becomes easier to tuck away a little cash every month. Obviously, this squirrel thing isn't going to work out for the majority of you, so I encourage you to find your own motivational story/analogy.

Well, shit. Gotta save up those acorns for winter!

Source: A blog called Grandma's Cellar Door

Why am I emphasizing silly stories and analogies? It's to get you in the right mindset and to get you thinking about your finances in the right way. Financial success, like body image, depends heavily on your attitude and there's no one way to define what it means to be "successful" financially. Each person comes to the table with a different hand of cards that life has dealt them, and it's up to them to figure out how to play that hand. If you want to achieve success, you need to sit yourself down, decide how much you're capable of with, and then you must choose to put in the work to improve yourself. 

Let's move on to a few key concepts that I've found to be extremely helpful with managing my finances over the years:

Lesson #1: Money is (mostly) a mental game.

I believe successful financial planning is 90% psychological and 10% dependent on factors like income or earning potential. You can make lots of money, but if you don't have any goals or a financial roadmap, you're going to be running in circles.

If you're earning an income, you can do one of four things with that money. You can save it, invest it, repay debt with it, or spend it. Lay out your fiscal goals with regards to saving, investing, and repaying debt first. Once you've decided how much of your income to drop in each of those buckets, you can take the remaining income and choose how best to spend it by drawing up a budget. We'll set our goals in this session and then work out a budget in the next session.

Let's start by writing out our goals for saving, investing, and repaying debt.I like to divide up my goals into short-term (next 12 months), medium-term (5-10 years), and long-term (lifetime planning), because I feel that it gives me a better sense of the bigger picture but still stays relevant enough that I can tackle my goals and feel like I’m making some headway (it’s all a mental game, remember?). However, feel free to structure your goals in a way that works best for you. If that means setting weekly goals like “Save $10 per week,” go for it. Just make sure your goals are reasonable and provide yourself with a buffer. It always feels better if you set a lower goal and exceed expectations than if you’re wildly optimistic and end up failing to meet your goals every time.

Lesson #2: Be pessimistic in your planning (within reason). Build in buffers, budget high, assume you won’t receive a bonus or tax refund this year, etc.

Otherwise you’re setting yourself up for failure and you will get discouraged and sad. Being pessimistic in planning leads to a very risk-averse approach with lots of built-in positive reinforcement. If that system doesn't work for you, feel free to plan with optimism, but just know that it might end poorly.

I’ve listed a few examples of saving/investing/borrowing goals below to get you started, but since we are all special snowflakes, everyone’s list of goals will look different.

Example of a short-term savings goal:

By July 2014, create an emergency cash cushion of $__________ that will cover up to 6 months of my minimum living expenses.

Example of a medium-term borrowing goal:

By December 2016, pay off all my student loans.

Example of a  long-term investing goal:

Over the course of my lifetime, invest in such a way that I can retire comfortably without being a burden to my family members.

Lesson #3: Things change. Be flexible.

Keep in mind that our lives are dynamic and constantly changing. We are constantly changing. As your priorities and your circumstances shift (e.g. getting a new job!!!), make sure you’re coming back to these goals periodically. Take time to reassess whether they still make sense and adjust them accordingly.

For example, we start gettting all romantic and shit. Babies?

 

Or we realize we're tired of drinking cheap beverages and we discover a desire to get all fancy-like with craft beers, local wines, and bespoke cocktails. Or we just want to drink more of everything. Either way, priorities have shifted and the alcohol budget needs to be increased accordingly. This happens to everyone as they get older, I promise. Unless you quit drinking, in which case, I salute you and will admire you from a distance.

Now that we’ve set our goals, we need to take a look at what we’re earning and decide how best to allocate those earnings in order to achieve these goals and still have something to live on. That brings us to budgeting, which we will cover in our next session. So exciting!

Irrelevant anecdote:

I was browsing mymomisafob.com a few years ago and I saw a post about an Asian mom who sent her kid an email saying “Be a good squirrel ready for ice age," with regards to saving for the future. Naturally, I found this hilarious. I forwarded it to my dad and he responded with: "All fobs do experience ice ages one way another - Asian or not.” He went on to note, “we know you have always been a good squirrel." ^_^

Anyways, the point is that I am not the only one thinking like a squirrel here. And also, Asian parents take everything to whole new level. Here I was, just trying to prepare for winter, when they were preparing for a freaking ice age!!