Huw JonesStop telling yourself money stories to make you feel better. Have a reality check instead. Acknowledge that it is your behaviours that have got you to this point. Make sure you know where ‘here’ is.
What’s the first step?
Add up everything you’ve ever earned, everything you ever been given, birthdays, inheritances, tax rebates, everything. Over your entire life. Do it. Now.
Pause this video, I still be here when you’re done.
All done? Great
nose for step 2
This is one from a money coaching client I worked with...
First summer job £500
Other summer jobs £3,000
Inheritance1 £15,000
Inheritance2 £40,000
Job1 £68,000 [4 years]
Job2 £54000 [3 years]
Job3 £300,000 [10 years]
Job4 £612,000 [8 years]
Side hustle1 £2,500
Side hustle2 £10,000
Side hustle3 £1,500
Total Income £1,106,500
The next step is to work out the value of everything that you have in your life. Not what you paid for it, only what someone would pay you for it if you sold it today. Don’t forget to add in all the value of your investments and pensions too. These are your assets. Here’s the client’s...
House £300,000
Pension £186,000
Isa £15,200
Savings account £3,500
Car £3,100
House contents £10,000
Assets £514,700
Finally, add up all your debts. These are your liabilities. Here’s the my client’s...
Mortgage -£110,000
Total liabilities £110,000
Your net worth is your assets minus your liabilities. It’s the value of everything you own less what you owe to other people.
Net worth = £514,700 - £110,000
Net worth = £404,700
The final piece of the puzzle is to work out this difference between your lifetime income and your net worth. This number is the cost of your lifestyle to this point in time. It’s important to understand why knowing this number is vital.
Cost of lifestyle = £1,106,500 - £404,700
Cost of lifestyle = £701,800
This number shows you what the cost of living the way you live has been up to this point in your life.
My client was distraught (given their financial predicament at the time) that they had ‘wasted’ [their words] over £700k.
Accepting this number as the reality of what got you to this point in your life is the first step to change.
A reality check is what’s needed here. Looking back through a lens of ‘no blame, no shame’ is essential. The importance of acknowledging what has happened cannot be over stated. This is the point where learning should happen.
There’s two choices...
- Carry on as before. But this time it’s a conscious decision now that you’re armed with the knowledge of the impact of lifestyle choices on your financial landscape.
- Do something different. Learn. This is the only way to achieve a different result. Continuing to do what got you to ‘here’ will not get you to ‘there’ (wherever ‘there’ is for you).
The learning for my client was that if they had saved one seventh of their income they would have their mortgage repaid. They could still have had great fun spending [or wasting depending on your point of view] the remaining 6/7ths
Now my client chooses not to spend a minimum of 25% of their net income each month. They enjoy the challenge of seeing how to close to 50% or more they can get. When things get tough and they feel like they having a blow-out they re-read the cost of their lifestyle that they first completed with me. It still gives them that sicking feeling that they had at the time. And they keep going.