The single most important question all of us must answer in our money lives is “How can I build and maintain financial reserve?” This one ability is the dividing line between money mastery or misery, here’s why.
Those with financial reserve are able to experience a freedom and lightness about their finances that so many search for. Those that don’t remain in the grip of money scarcity and anxiety, always looking over their shoulders for the next financial sideswipe. Although it’s not obvious on the surface, answering the question of how to build financial reserve by its nature requires that we master our greatest money roadblocks, including:
- Managing cash
- Paying off consumer debt
- Learning to save
- Determining what our lives really costs
Managing cash is about having a system in place so that money decisions are mindful and informed. The benefits of using a system include (i) paying off debt, (ii) saving money, (iii) keeping us connected to what our lives cost, (iv) reducing stress and (iv) better alignment/fewer arguments with partners.
Paying off consumer debt
Debt boot camps, real time credit scores and all the related industries that have developed around debt repayment give the impression that being debt free is the pinnacle of financial wellness. Wrong! Paying off debt is not our financial endgame. It is, however, a necessary step along the path to building financial reserve (and by extension net worth).
Learning to save
The ability to accumulate money is the drive engine of building financial reserve and financial independence. It’s also a lost skill. Whether it’s retirement savings (what I call your “Freedom Fund”), an emergency reserve or paying for your summer vacation, the method is the same. People I’ve encountered with long term money problems were only able to turn the corner in their money lives when they developed a savings ethic. The most financially content people I’ve met, not surprisingly, are serial savers!
Determining what your life really costs
As any business owner will tell you, You can’t manage what you don’t measure. Still, many of us are blind to what our lives really cost (about 80% of us in my experience). This leads to our being blindsided by what we perceive as “unexpected” events. In most cases, the things we consider unexpected, are more accurately termed – unplanned for.
Taking control of money doesn’t require good math skills (there are calculators for that). What it does require is looking at things in new ways, trying new behaviours and (surprisingly) creativity! This work is the sweet spot of coaching which explains why working with a money coach can accelerate breakthrough.
The 7 Insight System (you can learn more about this here) I developed over the last decade was derived through my interaction with countless households which struggle with the things mentioned above. It breaks managing money down into bite-sized pieces so users are able to build momentum and quickly make financial progress. Not surprisingly, the heart of the system is built around answering the question – How do I build and maintain financial reserve?