No, I am not crazy. But I do believe that we all have “voices in our head” that influence our path of action in any area of our lives.
Sometimes there is a voice speaks from our childhood, what we heard from parents or teachers about what we could do or should do.
Perhaps the voice of a spouse or a significant other who can either help to build up or tear down our self-worth.
Or it could be the voice of a supervisor which influences what we think about ourselves and our value in the market place.
What about Managing Money?
When it comes to managing money, we also have many voices in our head.
The voices of the news shows which speak to the current state of the economy and whether or not the American Dream is still alive.
Or the voice of the politician who thinks government is the answer to all of our economic problems.
Or the voice of a friend or relative which believes winning with money is just a dream and that you are better off by playing the lottery and hoping to win it.
After all, someone has to win. Right?
Carefully Filter What You Hear
In terms of how you and I can be successful in managing money, it only matters what we believe is true about our particular situation.
It is not about what the media thinks, what politicians think, or even what your relatives and friends think. Neither one of them pays your bills.
Neither one of them is in charge of your economy. You are in charge.
Even the advice you receive by reading this blog matters very little if you don’t take action on it.
It only matters what you believe to be true, because your success is ultimately determined by what you believe.
So, ask yourself these questions and consider your answers:
- Do you think it is impossible to live on a budget? Or do you think if someone showed you how, you could do it?
- Do you believe that you will always have a car payment? Or do you think it is possible to save and pay cash for your next car?
- Do you believe credit cards are a way of life, or do you believe that it is possible to live without relying on plastic?
- Do you believe you should focus on building your credit score, or do you believe that you should focus on building wealth?
How are you doing so far?
- Do you believe in spending all the money that comes in, or do you believe that you should save for a rainy day?
- Do you believe that you could really plan and save for retirement, or are you resigned to live on Social Security and Medicare?
- Do you believe that the only way to go through college is with student loans, or do you think that scholarships, work, and savings are a better option to cover the expenses?
- Do you believe is up to the government to help you and fix all of your problems, or do you believe that it is up to you to lead your household by doing what it takes to get control of your financial situation?
- Do you believe is up to someone else to help those in need, or do you believe that as you improve your financial situation you can then truly give and help others?
In the end, it is all about what you believe. Your beliefs will determine your actions.
So, what are the voices in your head saying about managing money?
“Finally, brethren, whatever is true, whatever is honorable, whatever is right, whatever is pure, whatever is lovely, whatever is of good repute, if there is any excellence and if anything worthy of praise, dwell on these things.”
Philippians 4:8 (NASB)
Unfortunately like many other good resolutions we make, lots of people fail to follow through on their good intentions.
But I believe that when we have the right motivation for completing a task, we will be more successful.
What’s Driving You?
Any great endeavor has to be begin with answering a short but profound question: why?
Let me give you an example. As you may have read on the blog, I set some goals for weight loss this year.
That has involved eating healthier and exercising more. Now, I know of course making better choices with food and moving more is good for you.
But that’s not enough of a “why” for me. Just having an intellectual grasp of the facts, did not cause me to do anything about it.
What got me going? What was my reason for taking action earlier this year?
Simple: I got a little scared about my health. As I get older, I know if I don’t deal with my weight issues it could mean a lot of health problems sooner than later.
That was the reason that caused me to take action because I have many things I want to do. I want to serve the Lord for as long as I can.
I want to be there for my wife for as long as I can. I want to be around my family for a long time.
What About Your Money?
When you think about your money, most people know that spending less and saving more is good for you.
Most people know that is better to live debt-free is better than being burdened by all kinds of debt.
But intellectual agreement is not enough. You need to find your “why” for getting your finances in order.
You need to find the motivation, the right reasons for you.
When you have the “why”, you will be willing to deal with the “what” and the “how”.
10 Reasons for Getting Your Finances in Order
So let me give you something to think about. You may want to work on getting your finances in order because:
- You are sick and tired of living paycheck to paycheck.
- You don’t want to keep use credit cards or other borrowed money to cover emergencies any longer.
- You are stressed out about the amount of money you owe and you want to be free of the shackles of debt.
- You and your spouse constantly fight about of money and you are afraid your marriage won’t survive much longer.
- You want your kids to learn to handle money better than you and have a legacy of sound financial management.
- You want to go into your golden years with a home that is free and clear of any debt.
- You love your job but you want to have the option of leaving on your terms when you are ready for your next stage in life.
- You want to retire with dignity, without having to depend on the government or anyone else to take care of you.
- You want to be an extravagant giver to your church and/or to cause that matters to you. You want to be in a position to help others.
- You want to take care of your family now and even after you are no longer here.
Some of the reasons on this list may resonate with you. But I am sure you can find others.
Whatever, your reasons may be find them today.
Once you do, I can help you with the “what” and the “how” for getting your finances in order.
Question: What’s your main reason for wanting to get your finances in order?
In this book Jim covers what makes companies that were once great decline and fall.
Through careful study of the companies, their decisions, and their results he identifies five stages of decline.
He also shows us that it is possible to reverse course and for those companies to go from decline to greatness again.
As the book says, “As long as we never get entirely knocked out of the game, hope always remains.”
As I went through the book I kept thinking that these stages of decline and their key lessons apply not only to companies and organizations, but also they could apply to individuals. In other words, you and me.
More importantly for the purpose of my financial coaching and of this blog, I believe these lessons can apply to our personal finances as well.
So here are the 5 stages of decline for companies that were once great, and the 5 key lessons from “How the Mighty Fall” that can be applied to our finances.
Stage 1: Hubris Born of Success
Hubris of course is another word for pride. In the book, Jim indicates that “Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underling factors that created success in the first place.”
How could we become arrogant in terms of our finances? I can think of a couple of ways.
First, we may have a great income. We either have a great steady job or maybe we are great at sales. We think we can always earn what we have always earned and even more.
Second, we spend and spend without regard to optimizing our purchases. We just think we can always catch-up with the next paycheck or the next big bonus, so it does not matter what we pay for something today.
We just simply think that we can’t fail because of what we have earned in the past.
“Pride goes before destruction, And a haughty spirit before stumbling.”
Stage 2: Undisciplined Pursuit of More
The pride of stage 1, leads right into Stage 2: “the Undisciplined Pursuit of More –more scale, more growth, more acclaim, more of whatever those in power see as ‘success’.”
I believe the application to our money management is clear for this stage. We all battle with the disease of wanting more things.
We want the newer car model all the time, so we fall into the trap of car payments or worse car leases.
We get the raise at work and we just want to move up in house right away, stretching our budget to the maximum instead of using the extra money for saving more or paying down debt.
Speaking of debt, because we all want more and more things now, we use credit cards without control and we fall into more and more debt.
“A good name is to be more desired than great wealth, favor is better than silver and gold.”
Stage 3: Denial of Risk and Peril
In this stage, “leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data.”
How can see this in our financial management? Well, perhaps we get into tons of credit card debt, but we are ok because we have a great FICO score and if we need to, we can always borrow more money.
It is also possible that even though we have no emergency savings, we feel ok because we have equity in our home. We could always get a home equity loan if we really needed to do it.
And what about not having the proper amount of insurance? Well, we’ll just take a chance that nothing bad is going to happen.
We can deceive ourselves into thinking everything is ok, even when we don’t have a firm financial foundation.
“A prudent man sees evil and hides himself, the naive proceed and pay the penalty.”
Stage 4: Grasping for Salvation
By the time you reach stage 3, the signs of decline are clear. In stage 4, the companies respond “by lurching for a quick salvation”. In other words, they want the quick fix, the magic pill.
With our money it might look something like this. We think we if we can just consolidate all of the credit card debt into one single payment, we will be ok. So we just move the debt instead of paying it down.
We can’t afford to send the kids to college, so we take a home equity loan and put our home at risk or we further delay saving for retirement.
Of course, the ultimate quick fix these days seem to be to just give in and declare bankruptcy. Now, there may be situations where we are forced to go into bankruptcy due to medical bills, a failed business, or a large tax bill.
But bankruptcy is not a panacea to heal all of our financial problems. It is a major financial decision with long term implications. It is not a simple quick fix.
“The naive believes everything, but the sensible man considers his steps.”
Stage 5: Capitulation to Irrelevance or Death
In stage 5, “Accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future.”
An interesting finding in the book for me was that “Organizations do not die from lack of earnings. They die from lack of cash.”
And that’s the key lesson of this. When we really on debt, on a quick fix, a risky investment, a government program, we are simply building on quick sand instead of building on a firm foundation.
When we get to this stage, there is no more leverage, no more credit lines, and no more home equity loans. So what do we do? Is there no hope?
“Hope deferred makes the heart sick, but desire fulfilled is a tree of life.”
So what, is There No Hope? Hardly
There is always help and hope for your finances!
In his book Collins reminds us that some of these companies fought their way out of decline and back to greatness.
They did it by getting back to the disciplines and practices that made them great in the first place.
You too can get back on the path towards financial wellness. You too can learn the basics of personal finance management.
You can get on a budget, save for emergencies, and get out of and stay out of debt.
You can apply discipline, focus, and sacrifice to get you and your family a better financial destiny. You never, ever have to give in and capitulate.
“Failure is not so much a physical state as a state of mind; success is falling down, and getting up one more time, without end.”
Jim Collins (“How The Mighty Fall”)