Money isn’t everything, yet it affects everything that’s important.
While money doesn’t inform who you are as a person–your values and passions–it supports your pursuit of those things, and the lifestyle you want to lead. The problem is that in today’s financial media, many discussions of money promote ideas and products that can actually limit your options.
Saving money, for example, is crucial to support your life in both emergencies and opportunities (we call this your emergency/opportunity fund). However, media promotes savings products that lock away your money and make it less accessible. You could argue that you’re saving for retirement, yet many people want access to their money well before then.
Then, of course, there’s contention about monthly income strategies–what’s more important, sticking to a budget, or having cash flow?
Allow us to bust these money myths and provide you with real actionable habits you can pick up, so you can heal your relationship to money, save with confidence, and feel more financially confident from month to month.
Money Can Put Strain on Our Relationships
When you don’t have enough money, or you feel as though your money habits are under scrutiny, it’s hard to feel secure in your relationships and your actions. Money can even be a major sore spot for many couples, eventually leading to divorce.
Having different attitudes or philosophies about finance can become contentious over time unless you find financial harmony. This comes not from shoving your feelings aside, but from facing them head-on, talking openly with your spouse, and being willing to make micro-adjustments to your habits and philosophy. In other words: creating “money harmony” in your relationships is all about communication and compromise.
It’s not just marital relationships that can become strained for financial reasons, either. Parent-child relationships can falter if money is not properly addressed and maintained with healthy boundaries.
Whatever the relationship, one thing is clear: talking about money is a must. When you can learn to be open, honest, and vulnerable about your challenges with money, you can begin to heal and create better money habits.
Money Habits: Starting from Ground Zero
Building better money habits is the cornerstone of financial freedom. Creating systematic, positive behavior can help you be a better steward of your financial circumstances. In turn, being a better steward of your money can help you to feel less burdened and freer, which is a boon to your relationships and your own mindset.
However, good money habits are, unfortunately, not incredibly common. Media talking heads tend to promote practices that don’t build wealth, or help people move beyond a “subsistence mindset.” Instead, they encourage the public to shoot for mediocrity over wealth, promoting products and strategies that keep you firmly where you are.
In order to install habits that help you build and grow wealth, you have to unlearn a few habits and replace them with new ones.
Money Habit #1: Ditch the Budget, Focus on Cash Flow
Budgets are like diets–nobody really enjoys them, yet everyone feels they need to go on one. Let’s just be honest, budgets can feel restricting, which makes them much harder to stick to. And few budgets account for a savings strategy. In fact, by Dave Ramsey’s approach, you shouldn’t save money at all until you’re debt-free!
While eliminating debt is certainly a worthy goalpost, we think Dave’s approach lacks a bit of nuance. The reality is that when you budget in a way that is only based on debt reduction, you limit your options in the event of an emergency or opportunity. Not to mention, a zero-debt approach doesn’t help your credit.
The Problem with the Dave Budget: Debt Reduction vs. Savings
Here’s a hypothetical: Say you have a decent income, with a comfortable job that you love doing, yet you have some debt to tackle. Some of these debts could take years to pay off–like your car, your student loans, and your home. Other debts could be paid down within a year or two, with a little dedication. Should you put all of your extra income toward reducing all of the debt, or should you also factor in some savings?
While Dave might advocate for the former, your savings are actually so critical. Say you were to lose a job unexpectedly, yet you had no savings preparation. You now have some very limited resources to help you pull through in a tough time. You don’t have any liquid cash to help you stay on your feet, and you probably have to rack up some more credit card debt in the meantime. Maybe you have some equity in your home, yet how likely is the bank to give you access to that money without a job?
On the other hand, say you have some savings set aside (maybe in a vehicle like whole life insurance). You now have much more liquid access to funds–something to cushion your fall. You may even have enough to keep current on any debt payments, so you don’t default.
While this is all hypothetical, the point is that in one scenario, it can feel like you lose any progress you made on your debt reduction. Not to mention, your money feels a lot less “real.” On the other hand, you have a cushion to fall back on so that you can pay your expenses while you figure things out.
What’s Better than Budgeting? Cash Flow
When you budget your money, what you’re ultimately doing is restricting. You’re placing limits on what you can do and accomplish. This is rooted in scarcity and isn’t really a viable strategy for the growth-minded.
So if not budgeting, what should you do with your money? Well, one way to increase your “budget” is to focus on keeping your money moving Cash flow is the money coming in (and out) of your hands. If you boost your income, you are effectively boosting your cash flow.
If you like your job or don’t have intentions of adding a “side hustle,” have no fear. While getting a new job or starting a business on the side can improve your cash flow, those aren’t your only options. Cash flow can also come from passive investments. For example, peer-to-peer lending can be a great way to pull in additional passive income over time.
If money is something that acts as a stressor for you, focus less on your Net Worth, and put more emphasis on how much money you can pull in and use. The more cash flow you have, the more you can save, invest, and spend. Whole life insurance can be a great place to store your cash, particularly because you can leverage that cash for investments and opportunities without interrupting your compounding growth. Contact us to learn more about this strategy.
Money Habit #2: Make Your Money Multitask
Once you’re in the habit of saving money, it’s even better to think about WHERE you’re saving. The place where you store your money can actually have a huge impact on your growth, ability to keep up with inflation, and even your ability to USE that money.
For example, if you go to the bank and open a savings account, you’ve got a good start! You have a place to store cash that is easy to access should you need it. However, it’s not the best vehicle for growth–-a typical savings account may only earn about 1% or so, depending on your bank.
What’s the Most Efficient Place to Put Your Money?
So what are your other options? Well, you may be tempted to look to target date funds–otherwise known as retirement accounts. Retirement accounts like IRAs and 401(k)s have increased in popularity, yet there are some drawbacks. While you may be able to get some growth, it’s important to understand that money in these accounts is not liquid. Any money you put in there gets locked away until a “target date,” which is typically age 59 ½. If you want that money any earlier, you can get hit with some hefty penalties. Then there’s the issue of taxes, which can be hefty on retirement accounts. Essentially, if you contribute with pre-tax dollars, you have to pay taxes on the growth when you use the money.
Does this mean you should get rid of your 401(k)? Not necessarily. We’re not saying a 401(k) is bad, however, it just doesn’t hold up as an emergency/opportunity fund if you cannot access your money efficiently, and when you want it.
The key is to find an account that can offer you growth and liquidity–and we call that whole life insurance. Storing your money in a cash value life insurance policy can help you grow your savings at a better rate than a bank account, without the stock market risks of a qualified plan. You can access your cash value whenever you want, via a policy loan. And this loan provision can actually help you leverage your money for cash-flowing investments later.
Knowing where to store your savings is so crucial to using your savings at optimal efficiency. (Not to mention, the right account can even help you manage large windfalls of money, so you don’t spend them immediately.)
Money Habit #3: Forget About Retirement; Find What You Love And Keep Doing It
This may be a controversial take, yet we believe that retirement is an outdated concept. Retirement, by today’s standards, is rooted in taking oneself out of service. We believe that in order to live a fulfilling and financially free life, it’s important to find work and activities that you’re so passionate about, you never want to stop doing them!
Of course, as you age, it’s natural to want different things out of life. You may desire a period of slowing down, or you may want to take a more graceful approach, and that’s all okay. What is really detrimental to people’s minds and money is thinking that at age 65, if you have $1 million, you never have to work again.
Thanks to inflation and people’s ever-increasing life expectancy, this just isn’t true anymore. An even better strategy is to find something you love enough to keep working at and saving until you cannot do it anymore–-that way you never run out of money. Or at the very least, it becomes much more difficult to do so.
Money Doesn’t Have to Be a Stressor
When it comes to handling money, things can get stressful. It’s hard to live in a mindset of scarcity–-where you feel like you don’t have enough or can’t keep up. Changing your money habits can put you on the right path to being more financially free, and reducing your financial stressors.
Of course, when push comes to shove, just consider all the reasons to be grateful for money–regardless of how much you personally have. Because money gives us all the freedom to do things we love and support the activities that matter to us.
If there’s any way that we can help you establish better money habits, we encourage you to please reach out to us. At Prosperity Thinkers, we would love to help you install faith in your finances and feel what it means to be financially free again. Contact us or email welcome@prosperitythinkers.com for support.
