First, let me say how incredibly grateful and blessed I feel to be resuming my blog. As a lifelong creative, I have always yearned for satisfying means of creative expression. I have achieved this in many ways, including performing music, songwriting, composing, and piano teaching. However, this blog has, by far, been the most satisfying project I have ever done online, as well as my overall most satisfying writing project.
Needless to say, I am very happy to have re-upped for another round of the 365 🙂
Today’s topic deals with money. First, I feel I should say that, despite today’s teacherly tone, I do not pretend to be an expert on the subject. However, over the past few years my passion for handling our finances has yielded some valuable new insights and understandings, which I enjoy writing about occasionally on this blog. I also have an ongoing mission to improve my own ability to handle and manage money. Hopefully my thoughts have some value for you, Dear Reader 🙂
Last year I wrote about what I see as the key components of money integrity. The first component related to handling your money to take care of all money needs, past, present, and future. Specifically, I asked:
Are you managing your money responsibly and holistically, so that you are allotting money for each of these three things: unpaid past expenses (ie debt) if any, present expenses (ie bills), and future expenses (ie retirement)?
When I wrote this, I couldn’t recall anybody else describing expenses in this way. I really liked the elegance of thinking of debt as unpaid expenses of the past, of bills as expenses of the present, and of retirement savings as expenses of the future. Some of the best ideas are simple, and this idea definitely appeals because it puts all one’s money considerations on a time-line that is easy to grasp.
Essentially, as I see it, good money management comes down to using your monthly in-flow of cash wisely to address these three concerns. Inevitably, this requires a continuous juggling act, as you “spend” money on each of life’s needs (“spend” in quotes, because saving for retirement is not technically spending but may feel like the same thing, as it takes money off the table for current use).
The juggling act starts, of course, with paying for the amenities and services of your life today, or what we commonly call bills 🙂 . These include things like rent/mortgage, groceries, transportation, and household supplies. It can also include incidentals, such as money for dining out or for fun. If you are self-employed like me, you also need to factor in business expenses and estimated taxes, which are paid quarterly, but should be set aside on-goingly every time you get paid.
In addition to handling these present needs, hopefully you are also addressing past debt. This means, you are paying off said debt in a timely fashion to reduce or limit the amount of interest you pay and to get those debts out of the way as quickly as you responsibly can. Such debts, of course, include everything from mortgages to auto loans to student debt and credit cards. (I listed mortgage first under present needs, because it is generally thought of as a monthly bill. However, it also represents a substantial debt taken on in the past, namely when you bought your house, assuming you didn’t pay for the entire thing with cash!).
Finally, in an ideal world, you are not only dealing with those financial obligations of the past and present, but are also dealing with the future needs you will have when you stop working. This is commonly called retirement savings, but it can be found in many forms: from 401ks and IRAs to rental property or other forms of passive income. These assets, ideally, are large enough to support you in your desired lifestyle as long as you live without you needing to work.
To sum it all up, with every dollar you make, in a perfect world, you are sending a portion of that dollar towards these three needs in order to adequately fund each! (Note about past debt: by “adequately fund,” I actually mean pay that shit off as fast as possible so that you no longer have it hanging around at all).
This is what I aspire to accomplish for us. Every month as best I can I make sure that our money goes to:
- pay current expenses (rent, utilities, insurance, groceries, etc)
- pay for current fun or future spending (movie or date nights with my wife, outings, future vacations and workshops)
- pay quarterly estimated taxes
- pay off remaining debt, ie the balance on my student loan… which I will pay off by my next birthday 😉
- put money into savings (to keep liquid funds available if needed; also to cover recurring future bills I know about and specifically save for)
- contribute money for investing in Individual Retirement Accounts or our Health Savings Account (the IRA is obviously for retirement, the HSA can be used if needed at any time, yet is also considered a long-term investment)
If you’re thinking, “This doesn’t look easy,” I heartily concur!
In fact, it took me numerous years into our marriage before I felt that we adequately addressed all of these needs. In some ways, I am still improving at the process. We did not get to our current level of proficiency over night.
Believe me, I realize how challenging it can be.
In fact, I would guess that most people in some way struggle to juggle the financial needs of the past, present, and future. In the worst cases, it seems to start when people struggle to pay for their current expenses, so they acquire debt through using credit cards, or take on loans they aren’t prepared to handle. They then struggle to pay these debts off. Those debts become revolving and ever-present. Thus, they carry unfulfilled past obligations long into their future, thus reducing their ability to save for said future.
In fact, excessive debt servicing (or paying off debts) is one of the most common reasons that people don’t save! This can result in people getting mighty disappointed when they arrive at that future without enough money to live the way they would like to.
The need to become an expert money juggler is indeed a formidable challenge. To my mind, unless you are such a high earner that you can easily cover financial needs without much effort, careful planning generally is required to accomplish it.
In other words, to be an expert money juggler, you need to be an expert money planner 😉
I certainly aspire to be both.
But it ain’t easy.
Thank God I don’t mind juggling 🙂