Oh, let me count the ways that we can experience financial hardship in 2020! It is no secret that this has been one of the most financially catastrophic years in history. Between Covid, political unrest, a revolution, an unstable stock market, a terrifying appearance of something apparently called "murder hornets", and literally an entire host of other other issues, it is easy to feel like we don't have control, especially when it comes to our own finances. That, my friend, is a lie.
Here's the thing: financial hardships happen. Whether it is due to Cov...the entire year of 2020..., a job loss, a foreclosure or short sale, a divorce, the death of a loved one, an illness, etc, there are practices that you can put in place to ground you, so that you can begin to build the foundation of your financial stability. Let’s explore.
Take a Deep Breath!
You're not the first person to go through this and you won't be the last. Everything... EVERYTHING... is figure-out-able. You need your mind and heart to be fully engaged in order to financially recover from any situation, so take a deep breath and resolve to be solution-minded. It has been said that we gain happiness from solving problems. I love that and it has recently shifted my perspective on a range of topics. Don't wallow in self-pity or the past. What you focus on expands and right now, you need to focus on forward motion. It's time to step up, be a boss, and uncover the solutions that are buried somewhere in the sand beneath you. So breathe, Rockstar!
Gain Clarity by Auditing!
I need you to hear me on this: You will not move forward completely in any financial hardship, unless and until you sit down and gain clarity around your current situation. Yes, it will take cold, hard, brutal honesty with yourself and your spouse/partner, but I promise you this: the breakdown comes just before the break through. Don't run from the breakdown. Don't hide from the breakdown. Allow the breakdown to happen, and create the space for a breakthrough. Where there is clarity, there is power.
Sit down at your desk or on your sofa with a cup of hot coffee, your laptop, a pencil and a notebook and get to writing. You are about to become the CFO of your life. At this stage, you must remove the judgement. We are not going backward. We are getting a clear picture and moving our lives forward. We're going to begin with basic assets and liabilities. That is, the amount you have verses, that which you owe.
What is your total annual and monthly household income?
How much cash do you have and in which accounts?
Do you have any remaining assets?
What are they and what is the current market value?
What are your monthly expenses right now?
How much debt do you have?
What KIND of debt do you have?
What are the monthly payments on each credit card?
What are the interest rates for each debt.
What are the payoff amounts on each of your debts?
Set Smart Goals!
Now that you have clarity around where you are in your financial situation, it's time to decide where it is that you want to go. That's right, it's goal setting time, CFO! I can already hear you in my mind right now, "Goals?? I can't set goals! I have to survive right now!"
That, CFO, is what I like to refer to as the survival mindset, and if you stay in the mindset of consistently surviving for just the present moment, you may continue to survive, but you likely will not go on to thrive. (This goes far beyond financials, y'all!) Your mindset can easily distract you and keep you from getting ahead. Financial stability doesn't just happen for a majority of us humans. It happens intentionally. So create your financial goals, and make 'em S.M.A.R.T! S.M.A.R.T stands for specific, measurable, achievable, realistic and timely.
Specific: Create a clear and definable end result. I recommend setting 5-year, 3- year and 1-year goals. The quality of the goal depends largely on your ability to get crystal clear on what it is that you want. “I want to put food on the table” is too vague and general, but, “I will have a 640 score by November 2020″ or “I will pay off $10,000 of debt by August 2021” or “I will have 5,000 in savings by April 2021 is specific and points you in a clear direction.
Measurable: How will you measure your progress? Break the big goals down into smaller goals. Those are called “benchmarks”. Making a goal measurable allows you to track your progressand know when you're winning or losing.
Achievable: A goal isn’t a pipe dream. It must be attainable, otherwise you will lose motivation and feel like you’re failing. By all means, set goals that are out of reach, but if you feel the lag of motivation, make sure that your goal is actually achievable for you in the timeframe, which brings me to the next letter in S.M.A.R.T...
Relevant: Is this goal relevant to the success of your financial future? "Buying a new car by 2021" is completely irrelevant when you are working on cleaning up the mess you made. Taking on additional debt is opposite of the right decision. Make it relevant. Improve your credit, put money in savings for emergencies only, pay off debt, buy a home, invest your money, start a retirement account. Make your goals relevant to your financial stability in future.
Time-Bound: A goal without a deadline is just a pipe dream. There is no power behind it. BY WHEN will you hit your goal? This is where the accountability comes in.
Take Action
Once you have put your mindset in check, evaluated your finances and set smart goals of where to direct the ship, it is time to take action. This is where you take your seat at the board table and become the CFO of your life. A great CFO will evaluate the situation, come up with a strategic plan for achieving the goals, and execute the plan. Every situation has a different plan of attack, but here are some tings to think about:
Go through the last 6-12 months of bank statements/ credit card statements. Hi-light all expenses.
Divide your expenses into 2 categories: Essential, Non-Essential
If your life was a company and you were the company's CFO, would you allow frivolous spending habits? Is this expense something that belongs on your budget?
I would encourage you to come back to the above question every time you try to justify keeping an item in the budget that doesn't meet the "Essential" criteria. Take control, Rockstar!
Stop the bleed. Look at the Non-Essential Category and hi-light the expenses that you can shut off immediately.
Get Help. There are tons of resources to help you with the specifics of your situation. Don't forget about leveraging other people! Do you need to find a financial expert, a REALTOR®, a finance coach, or will you simply learn on your own? A great CFO takes control of the future and knows that continuous learning is essential for future success. Listen to podcasts, read personal finance blogs, sharpen your skills.
Prepare a new budget with new guidelines.
Execute the plan like a Boss. This is where the rubber hits the road. Once you have your plan in place, take MASSIVE action. It won't be easy, but then again, nothing worth it is, right?
Becoming the CFO of your life takes work. It is work that is beyond worth it. Who would benefit from your taking control of your finances? How could your life change? It is possible. Remember, everything is figure-out-able. Until next week, Rockstars, peace, love, and good vibes from my home to your's!
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