In the prior two blog posts I looked at the fable of Juno and the Peacock from the point of being content with what you have. This isn't a permanent financial state as everything changes, rather it's about knowing you are capable of changing your money situation and being content with what you have right now. Financial success is a very individual determination. Certainly there are plenty of money management books, banks, investment firms, and advisers who tell you "this is what financial success looks like." However if you work for a non-profit and spend much of your time doing volunteer work, you may not connect with a lot of what these experts teach and feel lost or resigned when it comes to what money success and security really means in life.
One of my first clients was a young woman named Claire. She was in her mid-thirties, was a single mother with a five year old son. She worked in the entertainment industry as a producer however she felt she did not make much and would usually need to tap into her credit cards to cover her day to day expenses. She was unhappy, feeling like she was a failure financially and she would get extraordinarily stressed when it came to her annual tax return. She was mostly upset because she was watching her credit card balances slowly increase and she didn't understand why she couldn't make ends meet.
When we first met I began to ask her what her monthly spending plan looked like since her primary objective for meeting with me was to help find ways to reduce her tax burden and find out a way to get out of debt. Claire was unable to really articulate where her money went, she knew the amount of her biggest expenditure -- her monthly housing payment -- and that was it. Everything else was a guess. The first thing we did was get her set-up on Quicken. Over the next few weeks, we worked together to categorize her spending and watch her money flow. It was fascinating because by watching the money flow and how Claire lived everyday, she was able to see that it was the small stuff (the $3 here, $15 there) that added up to hundreds of dollars every few weeks. It was trips to the coffee shop, fast food, and those small purchases at stores like Rite-Aid that shrank her bank account by up to $150 a week.
This is a universal reaction from every client I have helped create or manage their Mint. Once they see their money in one place they clearly see where the leaks have been occurring in their money flow. It's usually for items that never come up in our initial conversation of what is important to them and yet can be, many times, the main derailment for their good intentions towards changing their financial well-being.
The next step for Claire was to create what I call a "Wallet" for three specific categories: coffee, fast food, and drugstores. After watching how she spent her money at these locations, she came up with a weekly dollar amount for her money outflow that felt good to her and yet also would help her be aware of each purchase, as once she spent the money in her Wallet, there would be no magic replenishment. Claire had been spending about $300 every two weeks on small purchases in the $3 to $35 range. She decided to see if she could consciously spend $100 on those same type of purchases in a one week period. We also wanted to gauge Claire's tolerance for being mindful on her spending. The goal was to find an amount that wouldn't make Claire feel like she was in a place of "want" but rather a place of "enough." I knew that if Claire set her Wallet amount too low, she would become frustrated with the constriction placed on her previous feelings of free spending on these smaller dollar amounts.
Claire withdrew $100 from her bank and put it in her Wallet. The following week when we met she opened her Wallet and had 9 cents remaining! I asked her how it felt and I'll never forget this, she said, "refreshing." Such a wonderful word to use! From that point we worked on the rest of her Wallet spending and this time focused on taking the extra money from her new habit of Conscious Spending to pay down her credit cards and start a savings account.
By setting Claire up on a money system, she began to watch her money and make conscious choices on where it flowed. She was able to pay off her credit cards (over a two year period) and do it in a way that didn't feel like she and her son were left feeling lack. Most importantly, Claire became content. She understood her money flow within the context of how she and her son lived their life. She was able to detach from all the "you should not have credit card balances" and "you must always save money" admonitions. She instead focused on what she and her son had and enjoyed. She began to consciously spend and allocate her money on what was most important in her life.