• Getting rid of whatever makes the foundation weaker
• Building and adding what will make your foundation stronger
If you build your house out of sticks and straw, like in the fairy tale, your foundation will be weak and the house will eventually collapse.
That is why, no matter where you are on your own journey, you need to do a complete financial assessment of where you are today. I review my income, expenses, and cash flow twice a month. Yet I easily can, and sometimes do, lose track of where I am today when it comes to my investments, assets, and accessible sources of money. If I’m not prepared for a great opportunity when it appears, I will miss it.
What Do You Need to Know?
The question to ask yourself is this:
If an investment opportunity that I want appears today, do I know what I have and don’t have available financially, and do I know what funds I need in order to own this investment?
There are two parts to this question:
1. Know what you have
What funds do you have available to put towards this investment?
2. Know what you don’t have and still need
Just because you may not have the money doesn’t mean you can’t still do the deal. It may be a matter of knowing how much money you need to raise in order to make the deal happen.
What Is Your Financial Truth?
It’s so easy to lie to ourselves about what we really spend on eating out, on clothes, or vacations. And it’s easy to pretend our investments are making money, or at least breaking even. It can be uncomfortable to face the facts and learn that you’re actually spending more every month than you’re making, or that the money you placed in that mutual fund, which the “experts” told you would make 10 percent, actually lost 20 percent last year.
Jamie got a surprise when she took a closer look at her finances.
One day my husband and I were having a conversation about our future and planning for retirement. We have no savings, no investments, we don’t own any properties, and we live paycheck to paycheck. We are both very naive when it comes to finances and have absolutely no knowledge about investing or creating financial security.
We were expecting to receive our tax return soon so we talked about opening an individual retirement account (IRA). We knew absolutely nothing about this except that people opened these to save money for retirement. We went to our bank to open an IRA. They were more than happy to assist us. We sat down with the regular bank teller and went through the steps with little to no explanation of what this process means and what really happens with our money. I was a little concerned that someone in the financial advising area did not come out and speak with us to make sure we fully understood what we were doing. They were quick to take our $500 and have us sign papers. Even so, after the process, we walked out of the bank thinking we had made the right decision and that our financial future was going to be great.
A year later, I was working on my financial statement with a mentor and we discussed the IRA. I pulled out our statement and showed her that we had made 41 cents last year. She responded, “You know that is a return on your money of about zero. Silver went up 31 cents in the past 24 hours, and 75% in the last year.”
What an eye opener! I thought the 41 cents was what it was supposed to be. I thought I was doing well! My husband and I are now getting ourselves educated through, books, seminars, and mentors. We play the CASHFLOW 101 game often with our entire family. We are determined to be financially free together.
Not only do you have to know where you are financially, but you also need to understand what “where you are” means in this financial world. Jamie thought that where she was, earning a 41-cent annual return on $500, was a good investment. As you will learn in this book, there are investments that any woman can participate in that will earn much greater returns… as long as you know what you’re doing.
Some Steps to Take
• Tell yourself the truth about any and all income that comes into your household.
• Be brutally honest about your expenses. What exactly do you spend every month? This is not a matter of your numbers looking good (although we women do like looking good). It’s a matter of knowing where you are—period.
Important: If you enjoy eating out every night, then financial freedom for you had better include eating out every night. Financial independence means having the money to live the life you want, not just having enough to survive. Financial independence is not living below your means. I would rather expand my means and have my money work hard for me so that I can create the financial life I want for myself and my family. Being honest about your expenses now is important, because this sets you up to have the financial future you desire.
• What investments do you own? Do you have stocks, bonds, mutual funds, retirement plans, real estate (other than your home), business investments, gold, or silver? What do you have that is making you money without you working for it? What price did you pay for the investments? What is happening with that investment today? It’s not uncommon to not want to open that investment-fund statement when you’re guessing it may be worth a lot less than you put into it. Look at every statement. That one action alone can be a valuable eye-opener.
If, for whatever reason, you don’t know what you have or what it’s doing, FIND OUT.
Warning: If you have not been handling your finances and have put them in the hands of your husband, a family member, or a financial manager, this could cause some tension, especially if this is the first time you are asking about them.
Why? Two reasons:
1. The person handling your money may not want you know what your financial situation is.
2. The person handling your money may feel threatened that you are questioning his or her ability to manage your money.
My suggestion: Simply be up-front, and tell the truth. It’s your financial life, and you have a right to it. If the resistance is strong and continues, then chances are someone is hiding something from you. All the more reason to find out the facts.
What outstanding debt do you have? What do you owe money on today, such as your house, car, credit cards, student loans, and loans to individuals (no matter how far back they go)? Any money you borrowed and need to repay should be included here.
If you have never done this before, stick with it until it’s complete. If you’ve compiled your financial snapshot before, then please update it. If you are fully up to date, congratulations. Please teach and support a woman who needs your guidance.
Note: In the References and Resources section in the back of this book, there is a sample financial statement. You may use that as a template for your finances.
Keep Your Numbers on a Tight Leash
Finding out exactly where you are today financially is like a breath of fresh air. It’s a relief. Don’t invalidate yourself or beat yourself up if your finances are not where you want them to be. So what? It’s where you are. It is what it is. Now that you know what it is, you can deal with it. Until that time, you were only wishing and praying. Every time I review my numbers, I learn something new, and I’ve been doing this for just about 25 years.
Remember that your numbers are dynamic. They are always changing. They are never static. As long as your numbers keep moving, you need to keep moving to direct them where you want them to go. If you let a puppy run free, he runs in all directions and you don’t know where he’ll end up. But if you’re guiding him on a leash, then you both end up where you want to be.