In my previous financial articles, you’ve read about taking responsibility for your financial life, improving both your financial and singing success by changing your financial and singing thought patterns, and about creating a “life vision” statement so you know where you want to go.
You may have been wondering when we’re actually going to talk about finances. Well . . . the time has finally arrived! What you’re going to learn now won’t do you much good, however, if you haven’t followed through with the previous assignments.
Money affects many aspects of our lives. It affects our health, our social life, our spiritual life, our education, our singing careers, our family, and even our self-image.
Lynn Twist, in his book, The Soul of Money, writes, “In the honest, bold, and thoughtful examination of our relationship with money we find some truth, and in that truth—whatever it is—we can find enormous possibility and surprising power. We can realign our relationship with money to be more truthful, free, and potent, enabling us to live a life of integrity and full self-expression that is consistent with our deepest core values, no matter what our financial circumstances.”
By now, through the creation of your “life vision” statement, you ought to be clear about what a life of integrity and full self-expression is and be aware of your deepest core values. You should have defined more clearly what singing and financial success look like for you.
It is time to piece together a plan for you to achieve your vision—but how can you head towards your goals and improve your finances if you don’t know where you are now? That leads us to Success Principal No. 4: Cash Flow is King.
When it comes to managing our money, most of us are out of control and don’t even know it. The first step to gaining control is to measure where you are, then learn how to manage what you have.
“If you can’t measure it, you can’t manage it.” —George Odiome
To measure where you are financially, do a financial “weigh-in.” This is your moment of financial truth, where you begin to face your spending habits and gain the power to head your spending in the direction you have set forth in your vision. From this point forward, you will know exactly where your money is going. This is the most important financial measurement you can possibly make.
Cash Flow Check-up: What are your spending habits?
Step One
Add up your gross monthly income. You can put this into a spreadsheet on a computer, simply write it on a piece of paper, or use a money-managing software program. For singers who are sole proprietors—which will include most of you—income varies from month to month. Ultimately, you want to set spending goals based on your income and outgo, which is challenging to do when your income varies. You may have to track your cash flow for several months then average out your income and outgo before you can set some solid spending plans.
Step Two
Add up what is taken out of your gross monthly income before you get it, including federal taxes, state taxes, FICA, 401K contributions, Thrift Savings Plans, Cafeteria Plan contributions, etc. Adding up these figures is often a shocking wakeup call, warning you that you need to focus on reducing your taxes, or that contributing to your company’s retirement plan is putting you in the hole every month. Those of you who don’t get a “paycheck” should have already calculated, with the help of your accountant, how much money you need to be setting aside for your taxes and be putting that money into a savings account specified for that purpose. Subtract all of the above from your gross monthly income to calculate your net monthly income. This is what you have left that you can spend.
Step Three
Add up your monthly expenses. Go through your check register and receipts. Start tracking everything you buy with cash. You want to get a detailed picture of where you are spending your money by tracking such things as lunches, lessons, vitamins, hair care, nail care, sports activities, cosmetics, car washes, lawn care, house cleaning, memberships, recreation, etc. You will begin to see a clear picture of where you are overspending and what your true financial priorities have been up to this point.
Here are some of the things you can list:
* Monthly expenses: House payment or rent, auto payment, groceries, utilities, medical and dental bills, auto insurance, life insurance, health insurance, home phone, cell phone, auto gas and oil, personal debt payments, Internet, cable, credit cards, child care, your allowance, your partner’s allowance, the kid’s allowance, and charitable contributions.
* Variable: Entertainment, home repairs, car repairs, travel, clothing, and gifts.
*Investments: Savings, long-term savings, debt elimination, aggressive investments, and business investments. Now, total up your expenses.
Step Four
Total your net monthly income minus your monthly expenses to get your net cash flow. A positive net cash flow means you have discretionary income that can now go towards your financial goals—such as building your savings account, including what you want to set aside for singing opportunities that may come your way. A negative net cash flow means you must immediately reduce expenses, increase income, or both.
Improve your cash flow by setting target cash flow goals
David Bach in his book, Start Late, Finish Rich, describes what he calls the “latte factor” where people discover they are spending $80 or more a month on their “latte” habit. That $80 a month—invested for 30 years, gaining an average of 10 percent interest annually—would give you an additional $182,300. Suddenly that morning latte doesn’t taste so wonderful after all!
Perhaps you’re a fast-food junky and are adding up a whopping $200 per month grabbing that quick bite to eat because you have been too lazy to figure out how to make something quickly at home for pennies on the dollar compared to what you spent at a fast-food restaurant. Saving $200 a month at 10 percent annual interest after 30 years would give you $455,865—money you’re literally eating up! You might even lose a few pounds along the way.
Set target cash-flow goals by analyzing your current cash flow to see where you could do better. Start by setting spending goals in those areas. If you’re spending $200 a month eating out, set a goal to reduce it to $100 a month. Check yourself halfway through the month to see if you’re on track. Take that extra $100 and put it in your savings account (I like to call it an opportunity fund) or put $50 into savings and $50 toward paying down your debts more quickly. People are often surprised to see how just a little additional money put towards reducing their debts—and approaching paying down their debts in the proper manner (a subject we will address in the future)—can have them completely out of debt in five to seven years, including their mortgage! Can you imagine how freeing it would be not to have a mortgage or rent payments?
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” —Will Rogers
Some of you at this moment are asking, “What should my financial goals and priorities be? Where should I be putting that extra money I found by reducing my monthly outgo and eliminating my fast-food habit? Should I save first, invest, or focus on reducing my debt?” Those are great questions; each needs an entire article to address, so check in next month!
Assigned: Track your cash flow for at least three months and set target cash-flow goals in areas where you can improve.
