Building A Strong Foundation

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Last Spring, I posted a piece called “Becoming the Architect of Your Finances“. It outlined the 5 ingredients that make up your Personal Portfolio; an ever-changing collection of Skills, Priorities, Interests, Community and Experiences. You can call it your “secret sauce” or your “art”,  I prefer calling it “S.P.I.C.E.” – the seasoning you add to whatever relationship or situation you’re in.

Your Personal Portfolio – each of these 5 ingredients – provides a framework that offers insight to the resources that you currently have at your disposal. It also highlights areas that are lacking or need reinforcing. Let’s examine each ingredient and the characteristics that will contribute to building a strong financial foundation.

Skills – One of the most important Skills in building a strong financial foundation is being really great at tracking.

In the same way that reaching your fitness or health goals requires tracking activity and nutrition, financial wellness requires tracking your numbers and results, as well. It takes work on the front end to develop a system that works for you, but will result in reduced stress and greater confidence in making good financial decisions.

Here are a few key numbers that will be important towards tracking your financial wellness:

  • 10% – Automatically set aside out of each paycheck or payment you receive. In the beginning, the funds will be used to build your Emergency Bucket.  Do this first and keep doing it as long as you have income coming in.
  • 25% – 50% of your annual living expenses. Your Emergency Bucket needs to grow and remain within this range. It will ebb and flow, as unexpected expenses come up and funds continue to be added.
  • 100% – Automatically contribute the minimum necessary to get a full match from your employer on your 401k. This will reduce your taxable income and build your retirement fund over time. If you don’t have a 401k, contribute at least 3% of each paycheck or payment received towards an IRA or ROTH IRA.  Start early and keep doing it as long as you have income coming in.
  • 30%/40% – Maintain monthly housing/rent expenses below 30% of gross income. This includes insurance, taxes and association fees.  Keep your total housing expense plus recurring debt payments under 40% of gross income.
  • 30% or less – Total balances on credit cards/ lines of credit as a ratio of the total credit available.  By maintaining low balances on existing lines of credit, this will improve your overall credit rating.
  • 740 – A credit score of 740 or better will get you the best interest rates and discounts, when you do need to borrow funds for a car, education or home purchase.
  • 12 months – The minimum length of time since you made a payment late – over 30 days late. The longer you have no late payments, the better your overall credit score and ability to borrow funds when needed.

To begin, you’ll need to identify where you are right now in each of these areas. That will provide a road map of what adjustments you will need to make. Start with one or two goals and re evaluate at least once a month to track your progress.

Tracking your progress towards stronger financial measures is critical. Next, I’ll share some insights on Tracking behaviors and activities that lead to a stronger financial foundation.

Step 2: Know How You Behave

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In my earlier post “Where to Begin? “, I shared two critical steps in self-evaluation: first, “Know What You Value ” and second,  “Know How You Behave”. In this post I’ll clarify the second step in the process.

Hopefully you’ve taken time to read and contemplate on the first step. Knowing what you truly value can become a grounding force, preventing you from straying too far off course on your journey. What are those principals and truths that are core to your story? I encourage you to revisit them often, especially during times of personal growth and transition.

Once you have a good sense of your values, let’s take a critical look at your actions. In a well balanced flow, actions should mimic core values. Not because they are well practiced, rehearsed or memorized. That would be considered manipulative and deceitful. Our actions, especially those that are spontaneous and reflexive, provide insights into our strengths, as well as our shortcomings.

Set aside some time to make some notes. Think about some of the interactions you have had with different people over the past few days. You might want to divide your notes into segments of your relationship to each of them. For example, interactions with loved ones, interactions with coworkers, interactions on social media or interactions with workers at places you patronized. As I mentioned in my previous post, be as transparent and genuine as possible in recording your actions. This is for your growth.

As you recall each interaction, think about your body language and the language used. What impact did the environment and circumstances of the interaction have on your actions? Did the time of day or your mood affect the interaction? Jot down patterns or inconsistencies you uncover. You might find it useful to carry around a journal for a few days to take notes as things happen, to better identify patterns and trends.

Let’s filter what you have discovered about your personal actions, how you behave, with your earlier notes on the five to ten core values/beliefs that represent your true self. There will be a disconnect. That’s where the opportunity lies.

Take a few final minutes to consider what are the “triggers” – environmental, physical, social, etc – that spark those actions that are not in line with your story. Think about where they are coming from and challenge whatever fears, insecurities or limitations you uncover. Choose two or three actions to modify, reduce or eliminate over the next several months. Create a plan of action, involve at least one friend and track your results at least weekly.

Your actions do speak much louder than your words. Pursue living true to yourself, in spite of your circumstances and moods. Please share any feedback you may have.

Step 1: Know What You Value

In my previous post ” Where to Begin? “, I shared two critical steps in self-evaluation: “Know What You Value” and “Know How You Behave”. In this post, I’ll share some insights on clarifying the first step.

Know What You Value – The first step in personal growth is identifying “YOU”.  Although you may share some similarities with friends or relatives, your story is your own. Every experience, the books you’ve read, the movies you’ve watched, your relationships – all of these have contributed and helped shape who you have become.

A useful tool in clarifying those beliefs and values that define you, is called “Mind Mapping”. This is a way to uncover the repetitive underlying themes in your life.

First, set aside some time and a place where you can avoid distraction. Get comfortable. Have your favorite writing tool on hand- paper, post-it, white board, etc. Spend a few minutes thinking about your story; those moments that are deeply impressed in your memory, turning points, times when you felt vibrant.

Next, begin jotting down events, words, or even images that represent your story. Don’t be concerned about putting anything in order or in any particular fashion. Avoid editing your thoughts at this point. This is for your eyes only. Take your time and dig deep.

Once you feel ready to move on, take a few moments to think about the core values and beliefs you would like to be evident in your life. What are the words you would like to be used to describe you? What will you be when you are fully living as you hope to? Begin to write down the words, values and beliefs as they come to mind.

How’s it going so far?  Need to get up and stretch?

The next step is to examine the two pieces. Where do they line up? What patterns do you see emerging? Are there glaring gaps between the two? Really take time looking at what you wrote and consider what underlying beliefs led to some of your actions/decisions or prevented you from taking action. You may decide to sit on this for a few hours and come back to it.

Finally, after analyzing your thoughts, identify five to ten key beliefs/core values that represent your true self. Write them down on a fresh page and write a short definition for each. Keep it in a visible spot, to remind you of what is critical – especially when considering how you invest your limited time, energy and talent.

Where to begin?

Self evaluation can be intimidating. It is through this process, though, that all sustainable  self-improvement must begin. Unless you are able to clearly identify the behaviors and actions that have brought you this far, your best intentions will not provide the results you hope for.

Keep it simple and very clear.

There are two main parts to self evaluation – Know What You Value and Know How You Behave. Wellness resides where these two core drivers intersect. They evolve over time and it is important to re-evaluate your position on a regular basis. I recommend doing this at least once a year and during any major life change.

Know What You Value – There are plenty of things each of us enjoy or would like to experience. Dig deeper and you will find very specific beliefs and ideals that you hold sacred. Where do you draw the line and take a stand? What key words define you? You may even craft a personal motto or saying.

Mind Mapping can be a great exercise to identify key themes, recurring patterns and find connections. Look for five to ten important insights that reflect your personal identity. Consider when these became important to you and what your life will look like when these key themes are being lived out daily.

Know How You Behave – Now you need to track how you are actually living in this moment. What are your routines and habits? Take time to track your activity for at least a week to ten days. How does your day flow? What distracts you? How do you deal with interruptions or unexpected changes? The better you can be specific about your actions, feelings and reactions, the better you will be able to clarify what needs to change.

Once you have these two core drivers identified, you will be able to see how well they are aligned. Identify two or three areas that are causing the greatest friction – where there is a large gap between What You Value and How You Behave. Begin working on these areas by creating a 30-day action plan to draw them closer in alignment to each other.

Need help? Check out my Life Coaching page!

Share your story. I’d love to hear your feedback.

Becoming the Architect of Your Finances

I believe that most of us are capable of accomplishing far more than we give ourselves credit for. In times of duress and significant obstacles, we dig our heels in deeper and push harder, focusing our whole intent on getting through. Surviving. During these stages, it’s challenging to think about managing finances and putting plans in place. It’s enough just to get through another week. That is precisely why it is a good practice to begin crafting your financial map before a crisis (or the next crisis) erupts.

A good place to start is taking inventory of your personal portfolio. We all have one, trust me. It’s personal and very unique to each of us. Your personal portfolio is an ever-changing collection of Skills, Priorities, Interests, Community and Experiences. Some call it your “secret sauce” or your “art”,  I prefer calling it “spice” – the seasoning you add to whatever relationship or situation you’re in.

Skills – This includes every type of activity you have some level of competence in doing. Creating spreadsheets, doing research, gardening, chess, speaking another language, changing oil, knitting, or anything else you can recall.Your unique combination of skills may very well contribute to uncovering potential opportunities. I’ll write more on that later.

Priorities – This goes a bit deeper. Think about where you are at this point in time. What is the most critical action for you to focus your time, energy and resources? This month? This quarter? This year? You may be at the beginning of a new stage or relationship, so building trust and respect might be pretty important. On the other hand, you may be in a time of transition, so building up reserves and support systems may come first.

Interests – This is really important. It’s not just about what you are competent doing, rather what you really enjoy doing or want to try. Your list should include the people/places/things that you want to have as a part of your life. What would you like to explore, learn, discover, create?

Community – These are your networks. Start with family, schoolmates, neighbors, co workers, people you play sports with or know through meetups. Add any professional connections, such as doctor, dentist, insurance agent, or your mechanic. You may consider using your phone settings to tag people by category, build hives of people in similar fields or by geography. Our connections to other people helps build bridges that otherwise would be practically impossible.

Experiences – What are some of the most defining moments in your life? Who are the people or events that impacted you the most, contributing to your convictions?

By identifying each of these areas, hopefully you will be able to gain a clearer picture of your personal portfolio. Your portfolio provides the framework to better define what resources you have at your disposal to begin crafting your financial map. It also works as a filter to gauge important decisions, by verifying if it fits with who you are or want to be,

You are the Architect of your own finances.

Coming up next: Building a Strong Foundation

Hacking Your Finances

Managing personal finances can be overwhelming and time consuming. Over the course of several years, we piece together different accounts and tools to keep track of activity. There’s usually not too much thought put into it, except to do what is necessary to move forward. We do what we need to prevent extra fees or penalties, not thinking too much of how to leverage the system to work better for us.

Through my blog, I propose we break down personal finances into smaller parts, analyzing how each part functions and the alternatives we have to customize it to meet our preferences. We’ll consider the relationship each part has to others and explore the possible outcomes of tweaking each part. This experimentation will help us better understand how to design a system that is interactive, adaptive and simple.

My hope is to build a community that is engaged, sharing frustrations, questions and financial hacks they’ve created to manage their finances. This experiment goes beyond following a static system or ten-step program by some financial guru, it’s about taking ownership of driving your cash flow to do what you want.

Growing up, my dad used to tell me that everyone wants to get their greedy hands on your cash flow – they are bent on getting whatever they can by whatever means possible. So, be advised and be informed.

Let’s get hacking!