Realistically examine your habits.
Rule three is perhaps the second hardest rule in the “Building Blocks for Building Wealth”™ series. This rule requires that you take a fine tooth comb and go through your financial history. While doing this exercise, you’ll want to ask yourself:
- Over the past year, how much money did I make? Look at sources of income such as paychecks from your job, cash gifts, money from consulting work, etc.
- Over the past year, how much money did I invest into myself? This can be answered by looking at your savings accounts and other investment accounts (Retirement Accounts, CDs, Stocks, Mutual Funds, etc.).
- Over the past year, how much money did I spend? If you have a bank account, this is very easy to do (just look at the numbers in your debit column).
Special Note: Of the money you spent, you’ll want to break them down into major categories. The categories that I had were:
- A. Housing (Rent/Mortgage)
- B. Utilities
- C. Student Loans
- D. Medical Bills
- E. Self-Care
- F: Groceries
- G. Fast Food
- H. Shopping
- I. Bank & ATM Fees
- J. Other Loans
- K. Miscellaneous
If you are anything like me, what you see will be absolutely scary. After going through my bank account, student loan statements and credit card statements, I quickly saw a pattern emerge. I had a hunch that I spent money in a reactionary way. By the time I was midway through examining my “fiscal year,” I KNEW that I was right.
I’m not a bad spender and on its face, I don’t even have bad spending habits. Like many people in my position, an enormous amount of student loan debt ($91k to be exact) and mounting medical bills (roughly $20k), I would say that I was doing pretty good on my sole income (after take home pay for the year, $23,600 — my tax return made me cry). Like much of the working poor, I was able to stay ahead of my bills and I paid them on time. I even had everything automated so that it would come directly out of my account and I wouldn’t have to worry about late fees.
Then something crazy happened – I had surgery.
I knew before I went in for my surgery that I didn’t have enough money saved up to carry me through the time off of work and I made the decision to cancel my auto-pay. If you want to know what happened, check out my Miss Celie Moment post. This was also around the time I began to shut down mentally. I’d been running in circles about leaving a job that reminded me of an abusive relationship; and when I looked at my finances, there were key moments that stuck out to me. In November 2012, I spent roughly $200 on a whim after a bad review from my Executive Director. In December 2012, I went to the movies and dinner and shopping as a way to cheer myself up. It was at this time that I found out I had a fibroid the size of a softball and needed surgery. In February 2013, after a clash with Senior Management, I spent roughly $300 on food, books and clothes (I should also mention that in February I was sleeping on an air mattress in my Cousin’s apartment).
But what also stuck out to me is that I would juggle between paying the bare minimum of a bill and paying a much larger sum on a bill based on my fear of adverse reactions. That same November, I paid almost $400 extra dollars on a student loan because I was afraid I was going to lose my job (my thinking – “better to pay a large amount at once in case I fall behind” – which is foolish). In December, I paid up and over on all of the utilities (don’t do this ever). In February, I transferred all of the money I had in my savings into my checking and again paid up and over on some student loans.
In each scenario, I was scared — terrified — that I wouldn’t have a job. Or that my health prognosis wasn’t favorable. Or that…
Well, it doesn’t matter what I was afraid of (looking back I can say that). What matters is that I now understand that realistically, I made decisions based on fear; and fear and finances are not good bedfellows. Now that I realistically know what my habits are, I can move into developing new ones.
Stay tuned for Rule 4: Build New Habits.
Have you examined your habits lately? What have you learned about yourself?