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Don’t Get Trapped in Financial Survival Mode

Do you feel ever stuck in survival mode, with no clear end in site, especially when it comes to your finances? Maybe you are stuck in a job that you hate. Or your compensation doesn’t reflect your worth as an employee. Oftentimes, there is a disconnect between who you are now and where you want to be. It's important to not get trapped in a state of financial survival. Rather, clarify goals and shift your mindset from one of scarcity to abundance. Embrace the opportunities ahead. Prepare to thrive. (For related reading, see: How to Incorporate Generosity Into Your Life.)

Start With a Clean Slate

Make the decision today to start fresh. Don’t beat yourself up over past financial mistakes. If you have trouble with focus, I suggest reading Michael Hyatt’s latest book, "Living Forward: A Proven Plan to Stop Drifting and Get the Life You Want." Hyatt is a New York Times bestselling author, and he paired up with executive coach Daniel Harkavy to provide a blueprint for life planning. You won’t go through this book in a day. It takes some self-reflection and written articulation of deep-seated desires. Believe me, your time is well spent. In the end, you’ll hopefully have a clear life plan and steps for implementation.

Be Healthy

There are several parallels between physical and financial fitness. To be healthy in either realm, you need to focus on the goal and put follow-up systems in place. Financially speaking, resist the temptation to spend on big, frivolous items even if you have a sudden spike in income. On the other extreme, you may have plenty of excess cash and choose to hoard it. Neither of these behaviors are healthy; choose a middle-of-the-road approach and consider these guidelines: 

  1. Start small – Any behavioral finance expert will tell you that overnight transformation is impossible. In fact, debt management programs will tell you to pay off the credit card with the smallest balance first (regardless of interest rate). Why? Because small wins build on one another. Maybe your long-term retirement savings goal is 12% of salary. Right now, you are contributing nothing. How about starting with 5% and increasing it by 1% each quarter? You’ll be at your target goal within two years.
  2. Sequence matters  ALWAYS move income into your savings account(s) first. If you don’t have enough remaining to pay expenses, focus on cutting discretionary expenses like entertainment and meals out.
  3. Remove temptation  Consider any savings account as untouchable. Put an accountability mechanism in place so you are not tempted to draw on the account, unless for its intended purpose.
  4. Automate – Utilize automatic bank transfers (e.g., twice each month) for saving goals and large recurring payments. 

Income - Savings = Expenses

Want a real game changer? Decide on a savings goal first. Many personal budgets look at income and subtract expenses to decide on savings. I think this is backwards. How are you ever supposed to reach long-term ambitions if you don’t intentionally set a savings goal? This is a perfect time to plan for next year. For traditional employees at large companies, automatically direct a certain percentage of salary into retirement savings. Don’t just stop at retirement goals. Take the month of December to decide how much you will save towards education, vehicle purchases, and other goals that are important to your family.

Honestly Assess Yourself

Take a hard look at your 2016 budget. Examine areas of success and those that need improvement. Be honest with yourself and your family’s financial situation. If married, it is important for the two of you to examine this together. An expense reduction in one area may be easy for you but very difficult for your spouse, or vice versa. This could be an emotionally charged time as you face reality. One solution? Hire a neutral, third party expert to listen and help push through any disagreement. (For related reading, see: How to Achieve Financial Success in Your Marriage.)