This is the third article in my four-part series, The Financial Do Over. In this article, I’ll demonstrate what a solid financial infrastructure looks like and how to build it, starting with the question; What Will It Take? The heart – the sacrifice for that inch.
Seriously, What It Will Take?
If you are serious about strengthening your financial infrastructure, you have to be willing to get in a quiet room and sit with the question: What will it Take? Simple right? I promise you it takes a brave heart to do it.
I’m sinking, I’m constantly putting off paying THIS to pay THAT, the interest is overwhelming me, at this rate, I’ll have to work another 50 years. Something has got to give.
So let me ask you then, what would you have to live off of in order to pay off all your credit cards within two years?
What would you have to forego if you also wanted to put five hundred dollars a month toward an emergency fund while paying that debt down?
Do the kids stay in private school, or are you having the hard conversation about public school?
Do you stay in the house because it feels stable, or do you downsize to reduce the pressure you feel every month?
Each of these questions hits us in the gut, it’s our comfort, identity, pride, and routine.
When you start asking these questions, it’s going to feel like you are moving backward.
You are indeed going backwards, on purpose, and it’s okay, really, it’s okay. Going back is what will give you the freedom that you are missing.
You may not make every change you consider, but this will help you to see where you are standing.
Recalibrating What You Can Afford
I know from experience that when you’ve lived paycheck to paycheck, understanding what you can afford is very different from when you start making money and having excess. When you have just enough, that quickly tells you what you can afford. There isn’t a whole lot of math to it. I remember being a young mother in college. I never had to think about whether we could afford a trip to Disney World. It was a hard no because I didn’t have the money.
For many of us, when we start making money, we use the same stick to measure what we can afford. We ask, do I have the money? Can I afford the payments?
The problem with that measuring stick is that affordability automatically increases with income. You get a raise or a bonus and it’s immediately accounted for.
I want you to think of affordability as being directly linked to your financial goals. Without first establishing tangible goals, there is no way to truly know what you can afford.
When you are tethered to specific, measurable goals, something that stretches you, there’s an inherent trade off. The question of affordability becomes: what does this compete with? To what degree would this require me to forego what I am working toward? There’s an immediate feedback loop.
We ask, “can I afford the payment? “
That’s important but here’s where most of us get tripped up:
What we should be asking is, can I afford the purchase?
Let’s say you’re standing in a dealership deciding between an $80,000 Tesla Model S and a $30,000 Chevrolet Bolt EUV. The Tesla payment fits into your monthly budget. You can make the numbers work.
But what does it compete with? Does it mean that when something unexpected happens, you feel it immediately? Does it lock you into a tighter life for the next five years?
- Side-note: Let me just say that you can’t do this analysis at the dealership. This is a pen and paper in a quiet room process before you arrive, otherwise, your emotions will short circuit your ability to correctly process this.
Okay, let’s get back to it.
A payment fits into a month, while a purchase shapes the next five years of your life.
When you are tethered to real goals, the tension is right in your face so you can’t put it off until the future. The issue goes from whether the payment fits this month, to examining what the purchase commits you to over time.
A purchase affects your financial infrastructure, not just your monthly expenses.
Overcoming The Upset
I don’t know if you’ve ever watched an upset unfold in real time, but it can be gut wrenching.
If you kept up with the Winter Olympics, you saw it with Ilia Malinin. He went into that free skate as the favorite, everyone just knew he was taking the gold. The jumps he attempted were ones he had landed thousands of times. Suddenly, on the biggest jump he fell…twice. He ended up placing eighth.
If you’re a boxing fan (clearly I am), you might recall the upset with Mike Tyson vs. Buster Douglas on February 11, 1990. Tyson was undefeated and Douglas was a 42 to 1 underdog. At the time, Tyson was knocking everyone out… easy work. Douglas shocked everybody when he knocked Tyson out in the tenth round. What!
After seeing these upsets, I always think, I hope they have a therapist, a quiet room, and a strong support system waiting for them.
An upset is an emotionally traumatic gap between expectation and reality, and what makes it so difficult is that the stakes are high. If you worked hard, were responsible, and sacrificed for the life you’ve built, when the outcome does not line up with all of that effort and intention, it feels like getting rocked, like getting punched in the face.
When we start taking steps toward a new financial life, it will absolutely feel disruptive. Most of us will be inclined to go through this process privately. It is hard to take a financial Do-Over quietly, where the kids do not notice they are going to Nana’s instead of summer camp, no one will miss that you sold your home and moved back with your parents, or downsized.
Separate the Situation from Who You Are
Money touches our identity more than most of us would like to admit. We are the provider, the responsible one, the successful and stable one. If the changes you are making start to challenge your identity in a public way, it can hit you at your core. It’s not easy to separate who you are from the situation you are in, when you’ve worked hard and tirelessly to get there.
Remember that only YOU get to define what this change means for you and your family. I’ll be honest, redefining who you are is not easy work and you might need some help; it could be a therapist, your best friend or grandma-either way, you don’t need to do it solo.
Give Yourself Time… and Then Some More Time
You may find that your emotions are lagging far behind your logic. You know these are the right moves, yet you feel guilty, conflicted and maybe even despair. I’ve witness these feelings and I have experienced them and I would be lying if I said there is an easy way through them, or that they’ll go away once your mind is made up.
The truth is that you will likely wrestle with these feelings in some way or another for a minute. There may be moments when you think, I really messed this up, the kids are suffering, people will find out I’m struggling.
My offering to you is this, try and forgive yourself for not creating the outcome that you wanted. Give yourself time for the forgiveness to take root and time to grieve until then.
I’ll often ask my clients, “how can you gain or draw strength and reinforcement during this season’? Who can you lean on or turn to? I ask because it’s hard to go through this season without a strong anchor to help guide and support you.
What Does a Solid Financial Infrastructure Looks Like?
Here are the major components of a solid financial infrastructure. This isn’t everything, but it is a strong starting point if you are on your financial do-over journey.
1️⃣ Adequate Liquidity
Having enough excess accessible cash available right now. This is your ability to handle immediate (and unexpected) needs without borrowing money or disrupting your life
2️⃣ Expense Flexibility
Having the ability to adjust expenses if needed If income shifts, can you reduce spending without destabilizing everything?
Deposit Cushion
Not relying on this week’s pay to cover this week’s expenses. This measures how dependent your life is on income arriving exactly on time.
4️⃣ Savings Rate
Consistently saving a percentage of income toward future stability. This determines whether you are reinforcing the structure
5️⃣ Income Stability
Degree of predictable and steady income. The more volatile your income, the stronger your other structural elements need to be.
6️⃣ Discipline & Goals
Financial behavior consistently aligns with what you say matters. This includes follow-through, course correction, and working toward clearly defined goals.
7️⃣ Systems. Using a sustainable system to track and direct your money each month.
We don’t want to build fabulous exterior using all of the best materials with no money left over for the inside for the HVAC system for the electrical, plumbing, all that stuff. The truth is that the exterior is the easiest part to build; the interior is the part that takes time and patience.
The good news is that we can always go back and do it. But first, we have to stop working on the outside – adding a pool, landscaping, firepits. It’s time to go inside.
Assigning Every Dollar a Structural Role
You may not feel like you have anything extra.
You may go through your subscriptions and cut everything except Disney Plus, (because the kids forbid it) and after all the effort you find one hundred and fifty dollars.
Bet! At this stage in the game, you are going to feel like you’re a fighting for every inch; it’s more about discipline than financial progress. Today it may be one hundred and fifty dollars. Next month it may be two hundred. Later, when you sell something, reduce an expense, increase income, or eliminate a major payment, you will already be in your groove.
So, that one hundred and fifty dollars has a place.
If liquidity is weak and you have less than one month of essential expenses saved, that money begins building it.
If you are constantly depending on the next deposit to clear before bills hit, that money stays in your account to build a buffer.
If fixed expenses are suffocating you, that money begins reducing the credit card bills.
If long term savings is nonexistent, that money begins building insulation for your future.
Don’t worry about trying to fix everything at once. The first step is to identify what is weakest and start reinforcing it.
Right now, you are building the muscle through the small assignments.
Even if you are only fighting for one hundred and fifty dollars right now, that is still building. Keep on fighting for that inch with a brave heart, YOU’RE GONNA WIN!
Let’s Roll!
In the fourth and final piece in the series, I’ll drop some powerful insights, wisdom and final thoughts for you to take along the journey.
Talk soon.
Kahlilah Dowe, CFP®