Don’t misinterpret what I am about to say….
But we drive $5,000 Kias and my wife and I’s combined household income is in the top 10%.
Now, you might be asking yourself what does that have to do with anything ? A lot actually.
Because when it comes to money, financial awareness and honesty is everything.
Why you need money awareness.
The after school review session I recently conducted at my school is case in point a classic example of awareness.
Every year, schools around the country end the year with the dreaded standardized testing season. Many states require a minimum passing rate for subjects like math, history, science and English for students to be able to graduate.
Being a teacher for 10 years, I can tell you that some students you know got the annual tests in the bag, some are on the fence and there are a few you worry about. So in order to help the students you hold review sessions before and after school.
And just about every year, the same thing happens:
- Students who don’t need the review, the ones that got it in the bag, they come to the review session
- Students who greatly need the review… almost never attend.
- And all want something in return, like extra credit points.
It’s like the kids who really need to be at the after school review sessions are not even aware that the decision they are making might greatly impact them…
So again… what does this have anything to do with money?
Well often times there are many situations when we as adults are completely unaware of what we need financially. It’s like we have no clue where we are heading with our money, with our goals and even sometimes with our lives.
It doesn’t matter, but then again it does.
It doesn’t matter how you make your money, how much you make or even what you do with your money.
Remember, I said don’t misinterpret this post.
But I find it really funny when the students who don’t need to a review come anyways, it’s like they want to get EVEN BETTER.
Money works in a very similar way. It’s like the people who track, improve and seek to understand money further, continually find themselves in a better financial position then others.
And the people buy who don’t really care about their money… well they are like the students who didn’t come to the review session, but really needed to.
They often find themselves (Or you hear them) complaining, making excuses and justifying their financial woes. Not to revel in someone’s unfortunate financial position, but sometimes looking in the mirror is half the battle.
Look in the mirror & make some financial adjustments.
In July of 2018 I spoke to a Market Watch reporter about financial comparison and her biggest question was,
How do millennials in particular stop comparing themselves financially?”
That is step 1 when it comes to having awareness about your money, ending all comparison.
Whether that means getting off social media, cutting some ties with certain associations or adjusting some of your lifestyle, at the end of the day phase 1 starts with ending the comparison game.
Once the comparison thing is taken care of, the next step is to take action towards increasing your financial awareness.
It might be time to bring some awareness to these 6 financial categories:
1. Look at money in terms of percentage, not in quantity.
For example a $500 car payment might sound reasonable if you make $5,000 per month (10%) but it’s not if you make $2,000 (25%).
Banks can justify lending you money and sure you can get a credit card, but that doesn’t mean you should use it because you can. When you look at your finances in terms of percentage you will be hesitant to spend money, but you will also realize you might be spending way more then you should on things.
Rules of thumb: Car buying should never be more than 25% of annual gross income. Monthly housing should be no more than 30% of net income.
2. Are you doing things to impress people?
Along the lines of comparison, are you making financial decisions to impress people or is there a purpose to your decision making?
Don’t buy or do things to impress others. For one, they probably don’t care as much as you think they might. Secondly, you’re barking up the no win tree when you worry about impressing others.
It is a never ending battle between you and your happiness.
3. Is your lifestyle inflated?
If someone makes $50,000 and spends $40,000 and another person makes $100,000 but spends $99,000… well who is in a better financial position?
Stop buying expensive stuff just because you can. Lifestyle inflation refers to spending more because you make more.
Increase your net worth and don’t worry about the granite counters.
4. Be honest with your finances.
When you look in the mirror, the only person we fool really fool is ourselves. You can make $35,000 a year and lease a BMW and no one will judge you.
But how honest are you truly being to yourself when it comes to your finances?
If you’re someone who doesn’t have a 3-month emergency fund, you’re not close to owning a home and you have loads of consumer debt and student loans, well it is time to start being honest.
On the flip side, maybe you got a few of those things in line already, well maybe not it is time to step it up another level and start thinking about financial freedom.
5. Bring awareness to your spending.
It might finally be time to sit down, take your statement sheets and just categorize your spending.
You will be surprised to find out that you might be spending more money in these areas then your thought:
- Eating out
- Clothing
- Your transportation (Car payment, gas, toll road, insurance combined. Think %)
- Entertainment
- Frivolous stuff
6. Are your money decisions making your spouse happy.
Shots fired, where did that come from!?
What does financial awareness have to do with your significant other? Lots actually!
Bring awareness to your finances so that you and your spouse can live a life on your values. Stop doing everything for the dollar and start seeing how you can bring awareness to your finances so you can live life on your terms, with your husband or wife.
Not married (or far from it)? While you might think you’re far away, sometimes you will be surprised as to how quickly it comes up. There is no better time to bring awareness to your future then now.
My take when it comes to financial awareness.
If you’re still confused as to why I mentioned we drive Kias and our household income is in the top 10% is because we are very aware. In fact, maybe too aware.
Regardless, it wasn’t alway that way. I was the guy who recently found a student loan balance from college with some scratch math of me calculating the bare bone minimum to pay.
I didn’t know how to payoff things quicker.
I didn’t want to get ahead financially.
I lived paycheck to paycheck.
I drove a truck I should have never bought.
But once we became aware that money doesn’t fall from the sky and there wasn’t going to be someone swooping in at 65 to help us, we decided to get aware.
It boiled down to our long term happiness and security. So no matter where you might be, it could be time to really get aware financially.
Or as my students at the review session might say, it is time to become “Woke.”
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.