The money mystery
by Brad Hoffer, www.xlyourfinances.com
Some things in life are a complete mystery. For example, if you are trying to plan a vacation 3 months from now, you do not know if it will be good weather or bad...it's a complete mystery. At the same time, if someone asked you what the weather was like yesterday, you probably could answer the question fairly easily. But who cares about yesterday’s weather. Now here is the interesting thing, do you know that if you predict tomorrow’s weather (rain or no rain) by saying it is going to be the same as today’s, you will be correct more often than not, with somewhere around 75% accuracy. So knowing the past can help predict the future. Now it doesn’t necessarily help you predict 3 months from now, but it can at least help you with the near future.
Your money is much the same way. No one can know their distant financial future. They can hope and they can make educated guesses, but no one knows for sure. Your job may change for the better or for the worse. Your investments could grow exponentially or decrease suddenly. The good news is, you can have some idea about your near future by looking at how you earn and spend your money now. This knowledge can help you know what direction you are headed and what changes you need to make.
The problem is that even though this sounds like a simple concept, it isn’t. It is difficult to know exactly what is happening with your money, right now. So much of the money going out the door is based on decisions you made weeks, months or even years ago. Your past decisions on housing and the vehicle you drive are two major factors shaping the way your finances look like today. Your past decisions put the pressure, or lack of pressure, on yourself for today. This is why the journey to financial peace begins with knowing how you got here. At the same time, it is surprising how little thought is given to the future. When I first built the financial forecasting spreadsheet, I was surprised by the outcome. I was also surprised by the impact of decisions overlapping and creating 'tough' years. For example, I put an amount I planned on contributing to each of my kids, for each year that they would be in college. I also inputted 'big vacations' I was hoping we could do as a family. I then put in when I think our vehicles would need to be replaced (not to mention the extra vehicles needed when kids started driving) and suddenly I had a very interesting picture. The fact that college is spread over 4 or more years helped more than I realized and the timing of that big vacation became critical. How much we should spend on replacement vehicles became more obvious and which years I might need to tap into our Home Equity and possibly how much to cover expenses was clearer.
With this exercise of laying out a future plan, year-by-year, some of the decisions we would make, sometimes on a whim, became more significant in my mind. By at least having a picture of how the years would play out, I could better guide my family to maximize our experience. So many times we think that doing a financial analysis will mean we just have to spend less, but sometimes you will find, that you can actually spend more on the things you want to spend more on, if you are disciplined with some of the other major spending decisions. When you lay out a financial future, and see that it actually works out, you have more peace than if you just carry anxiety that you are spending too much, or there just isn't enough. This exercise can help break the bondage of illogical beliefs about money, and can actually increase your confidence about your future.
Consider the scenario where you actually do have enough money, but instead of enjoying it, you worry about money every day and refuse to spend or give any of it away? What kind of person are you becoming? At the same time, what if you are overspending and giving too much away? This isn’t responsible either. If you haven’t put together a future plan, you really don’t know what category you fall under. If someone said to you that you should take a vacation with your family because you only live once and those memories are priceless, you might brush them aside and say that is irresponsible. However, if you put a plan together and see that it is 'ok', that you will have enough money, then not taking that vacation might actually be the money mismanagement. Tracking your spending and planning your future are not just to restrict your spending, they are tools for you to maximize your money to your benefit.
The point of money is to direct it with intention and to maximize every cent that comes your way. If you over spend or over save, either option isn't desirable. The ideal is to spend and save the right amount. The amount that is appropriate to your particular situation, that accomplishes your dreams and helps you bless those in and around your life. You are less likely to give to others if you are living in a state of 'never enough' and fear for tomorrow. You don't have to live in fear, but in order to overcome that fear, you may need more knowledge. More knowledge on where your money is going and what your future will look like based on the decisions you have made and will make in the future.
Money, in many ways, is a mystery, but so is life. With money and in life, you can improve your situation by having self-awareness and living with intention. Money often reflects our approach to life... if you want to find peace with money, you need to increase your awareness with tracking and a budget and build out your plan (your intention) with a future forecast. Once you have done these activities, you will be in a much better position to enjoy your money (and life) with a little less mystery.
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I have been an Auditor, Analyst, Accounting Manager, Business Systems Manager, Controller, School Board Vice President, Director of Finance, CFO and COO over the past 2 decades of work experience. In my free time I developed the XLYourFinances spreadsheet and website I enjoy golf and spending time with my family. We attend church at LCBC.