I earn $150,000+ per year but I have no idea where my money goes!
With her glistening top-of-the-line all-wheel drive, immaculate wardrobe and enviable shoe collection, it’s unsurprising that a government professional, working as a senior executive, was the envy of her colleagues.
‘She has it all!’ they’d think, while filling out selection criteria to get the promotion and pay rise they assumed would guarantee them a similar financial security and lifestyle.
But was she as financially fit as they thought?
As a financial planner, I’m lucky enough to learn from my clients just as much as they learn from me. And one thing I’ve learnt is that just because someone is earning a decent pay packet, it doesn’t mean all their financial worries disappear. In fact, I’ve been approached by high earning professionals who are struggling to make ends meet —from families with kids to bachelors or bachelorettes. They have no idea where their money is going and are quite frankly, broke.
So why do we spend more when we earn more? Surely someone’s living expenses don’t increase more than their pay rise?
It’s a double-edged sword even I understand. As my career was climbing, I found I was juggling more stresses, mainly with my career, but also as my life changed and family grew. My discretionary expenses increased along with my tastes — these days spending $300 on a good bottle of French Champagne and dinner is nowhere as painful compared to back when my career was just taking off and my income was a lot lower!
It makes sense that you can afford more with a higher disposable income, but if we are constantly making these mindless and emotional $300 purchases, the false sense of financial security provided by a generous income can provide short term emotional fixes, but long-term financial detriment.
These days we’re all getting busier and busier — have you noticed that when someone asks you ‘how’s your day?’, we often respond with ‘busy’?
I believe that we’re all so busy juggling life – our careers, personal life, family, kids, health and wellness and our finances on top of it all. And more often than not, as that happens, finances will suffer because money is being used to fulfill a need that is not being met elsewhere.
For example, some people therapy shop when they are feeling down, some reward themselves with a new outfit or holiday because they got a promotion, while others may shower their kids with gifts because they feel guilty not spending time with them.
As someone once said to me, ‘we can easily see if someone in physically fit, but it’s much harder to tell if they are financially fit’. In fact, some of my wealthiest clients don’t look wealthy, until you look at their balance sheets. They are comfortable in themselves and who they are — they are able to manage their stress and emotions and don’t feel the need to show off their wealth to others. Equally so, I've helped high earning clients who are drowning in financial stress and debt — hidden behind the fancy car and private schooling for their kids.
Does this sound like you? Rest assured, you’re not alone, and there are things you can do to turn your financial situation around.
Here are some tips I have used in my own life, and shared with my clients, which can help you manage financial stress and stay financially fit.
Know where your money is going
This is an obvious one, but even I know how easy it is to be a mindless spender.
To start with, manually track all your expenses for 28 days. This 28 Day Challenge is a money mindset exercise, designed to help you truly identify where your money is going.
By becoming more mindful about your spending, you can start to identify your emotional spending trends, and use the data to help figure out which bank account structure, savings plans and budgeting will work best for you.
Once you’ve done that, the next step is to use software that links up to all of your bank accounts to automatically reconcile your spending and compare your spending against your budget. To do this, I use My Wealth Portal.
Get financially organised
This means not only having a financial plan, but one which aligns with your goals and motivates you, and this is something I can help you with via my Wealth Program.
I also use software such as Xero for my business and I’ve set up My Wealth Portal which allows us to organise all of our assets, including property valuations, liabilities, superannuation funds and uploaded insurance policy documents, to the cloud in a ‘one stop shop’ portal.
When you’re financially well organised, you will feel confident that you are making the right financial decisions for you and your family, be motivated to save and invest, and therefore can spend your precious time and energy on other matters, such as your career and family.
Save or invest your pay rise, instead of increasing your spending
Next time you receive a pay increase, immediately increase your automatic savings plans, investment portfolio contributions, or the principle repayments on a loan. By doing this before you get the chance to spend it, you’ll be surprised how quickly you’ll forget that you actually got that pay rise, and will get a lovely surprise when you see your net wealth grow over the following months.
Have a play money account
Ever noticed how much more you eat when you’re eating off a big plate of food, compared to if the plate was smaller? The same theory can be applied to spending money.
Paying yourself guilt-free 'play money’ each week can help you spend less — you’ll be a lot less inclined to spend from an account with a balance of $500 than if that account had $20,000 in it.
My husband and I transfer money in to our own individual ‘play money’ accounts on a weekly basis, which gives us both guilt-free weekly spending without feeling like we need to be accountable to each other about how we spend it.
I help clients work out how much their ‘play money’ should be, whilst balancing their other cash flow priorities.
Use your own money – not credit, personal loans or Afterpay
In this day and age, there’s a mentality to want to ‘have what we want, when we want it’, which is worrying when credit is so easy to access. It’s easy to take out a lease for our new car, put clothes on Afterpay, or a credit card because we can easily say to ourselves, ‘I’ll pay it off later’ or ‘I can get frequent flyer points’.
I honestly very rarely use a credit card and have never used Afterpay. I use my own savings, even if it means I need to save for that item. When you’ve saved for it, you’ll find that when it comes to purchase it, you’ll have second thoughts because it’s a lot harder to depart with your own hard-earned savings. I’ve seen that when clients borrowed for a car. They often purchase a more expensive car with bells and whistles because they didn’t feel the ‘pain’ of outlaying $50,000 for the car upfront.
Look after your most important asset
If you rely on your generous pay packet to pay the bills and afford your lifestyle, it’s important to insure your most important asset — your income. If you aren’t sure where your money is going now, I can guarantee you’ll feel even more pain if you’re off work for a long period of time because you’ve fallen very ill or had an accident, and you’ve exhausted your sick leave. I can help advise the best way to protect your income, and your wealth too.
Your next steps
If you are on a decent pay packet and have no idea where your money is going, it’s time to take responsibility by seeking expert advice, which I can help you with.
Reach out today for your complimentary 15 minute chat.
Gianna Thomson and Thomson Wealth Pty Ltd ACN 626 920 161 trading as Gianna Thomson are authorised representatives of Fitzpatricks Private Wealth Pty Ltd, ABN 33 093 667 595, AFSL 247 429. This is general information only and does not consider your personal circumstances, needs and objectives. It is important you seek advice from a professional financial adviser prior to making any decisions.