Giving Thanks, Even for Your Finances... Yes, It's Possible
It’s almost Thanksgiving and hopefully, we reflect throughout the year on the things that we are grateful for, but in the spirit of the holiday, I want you to think about what you are thankful for when it comes to your finances.
Yes, there are things for which you are grateful. In fact, I bet you can find at least 3 things and I will help you. When things get difficult or stressful with your finances through the year, try to remember you are grateful for a few financial positives. It may help.
I will start you out with my top 10 financial things to be thankful for. I know you probably do not have all of them and that’s not what this is about. If you have ONE item, you are doing better than a lot of people out there and you should be thankful. You may have others to add. Please send me yours if you want. I’d love to hear about them.
- You are saving something on a regular basis (monthly or annually) whether it’s $100/month or your tax refund or anything at all as long as it is consistent.
- You are contributing at least up to matching amount in your retirement plan at work.
- You refinanced and have a great mortgage rate or got rid of PMI or just have a great rate on your current mortgage.
- You’ve been discussing finances with your spouse/partner more or asking more questions.
- You have less revolving credit card debt this year than last.
- You have a plan in place to pay your credit card debt down or pay more than the minimums on your credit card debt.
- You have a small Rainy Day Fund for annoyances like car repairs so you do not have to charge them.
- You reduced your cable bill or some other expense and you are probably not missing it anyway…
- You are monitoring your full discretionary spending and maybe even your groceries spending each month.
- At the risk of being immodest, you are reading this blog, which means you care about your finances and that’s the first step.
There are lots of other things to be financially thankful for, like a raise, an increase in business, or a regular check. I bet you can think of at least 3.
Studies have proven that when we are thankful, we are happier. If we see progress, we feel less stress and are more apt to continue working at a goal.
And, since I’m in a business that adults react to the way my 7 year old reacts to the dentist, I figured it was time to get people seeing some of positives instead of cringing at the thought of financial planning. If you’re doing any of the above, you ARE doing financial planning!
The Difference Between a Cushion and Slush Fund and Why it Matters.
I always tell clients (and I do it with our household, too), to have a cushion in your checking account of $300-500. The reason for the cushion is because your slightly higher electric bill, random extra co-payment for the doctor, 2 quarts of oil for the car are NOT in your regular monthly burn rate and not big enough to dip into savings for. They are also not full discretionary items like a new sweater or a dinner out.
Having the cushion let’s your household absorb the up and down nature of some bills. Anyone who has every used extra data on their phone accidentally knows how phone bills can fluctuate.
Cushions are also for timing issues like if one bill comes due when you are waiting for another paycheck. A cushion is necessary to stop living check to check from both a TIMING and FLUCTUATIONS standpoint.
A slush fund is when you keep a bunch of money in your checking. A “bunch” is anything over $500 extra after your regular monthly burn rate. These dollars do not have a job, no purpose, no mission in life and we all know idle hands are the devil’s workshop.
The same is true of money that has not been assigned a job. This money sits there for a while, but inevitably, (ALWAYS) it gets spent and usually on frivolous things. Slush funds are bad.
Instead, have a cushion in your checking account AND have a Rainy Day Savings account with $3000 for a family with a mortgage and $1500 if you are single or for couples who rent. This account is for home or car repairs, emergency plane tickets, root canals, etc. Most importantly, your Rainy Day Savings account is for ANYTHING that comes up that is not your normal monthly burn rate and not fun/discretionary item.
Yes, you are the adult and you have to decide whether a quick trip to see your family is a full discretionary item or a Rainy Day item and I trust you will know the difference, because at the end of the day it only affects you.
If you use some money from your Rainy Day account for a car repair or whatever, replenish it the next month with your normal monthly savings. Divert your savings for that month to the Rainy Day account and replenish it. When it is back up to $3000 (or $1500), begin saving as always again.
The key is that every savings dollar has a home/job/mission . AND, you have a small fund for the "crap that happens." You do not have to charge annoying repairs and "crap that happens."
If you like having a bigger cushion because it helps you sleep at night, fine, have a larger Rainy Day Fund, but do not leave that money in your checking account. Your checking account can AND SHOULD go down to just a few hundred dollars by the end of your month. Note, the end of your month may not be the 30th depending on when your paycheck comes, etc.
Do not mix your Rainy Day Savings with other savings or Emergency Savings. A Rainy Day account is small and for use when stuff comes up. Emergency savings is critical and only for catastrophes (e.g. divorce, disabling injury/illness, and job loss). Do not mix them.
I promise once you get the hang of using your Rainy Day account for anything that is not a typical monthly expense, you will love it. You will spend less.