For sure the current circumstances have brought us positive things such as changing routines and leaving behind the autopilot that had been operating a non-negligible portion of our lives. Also, it gave us the possibility of taking several minutes to share with family and friends that we did not see a long time ago, due to a permanent lack of time.
Precisely, these days I had the opportunity to join a virtual birthday celebration of a close friend of mine, which was more enjoyable and pleasant than any celebration in-person.
After sharing many fun experiences about synchronizing home working and home schooling, excess or lack of physical exercise, insomnia, long hours of cleaning and home duties, an endless washing of dishes, the wide range of cooking recipes that many have tried and culinary talents that have suddenly awakened; someone dared to enter a swampy ground.
Quite serious, he asked a question that caused the guests instantly mute: ¿Have your emergency fund been enough to meet your needs during these days?
Suddenly a brave one broke the deep silence with a sincere answer: “The truth, I have no emergency fund; I wasn´t aware of its importance and now I regret not having built it”.
Following this, another interesting comment came from someone in the virtual room: “I have had to take part of the savings for my children’s education because sales in our company have been below expectations. I had no choice but to take that money to make ends meet”.
And another guest took the floor: “I always thought that it was unnecessary to have that kind of reserves because my monthly income was far enough to meet my financial needs until now that my payroll has been reduced without knowing how far due to the crisis. Now I have a couple of unpaid debts and I don’t know how to solve it”.
And so, with minimum effort and tons of courage, most of the guests talked about their personal or family financial situation, reveling that they were also experiencing disorders and money impasses.
The conversation got even more interesting when Camila, who has been learning about managing her finances in the past two years, mentioned that the day before she went to the supermarket after several weeks at home and felt so excited that she ended buying groceries as if «her parents, her uncles, ten cousins and a dozen children to feed were living with her». It should be noted that she lives with her sister and is a happily single lady.
Without losing humor and grace, the chat between friends became a moment for self-reflection and a clash of conscience about the importance of learning to manage their finances and strengthen its relationship with money. Being good at math and knowing the basics of profits and loses, does not necessarily mean you have the knack for getting around unexpected events and being undefeated without havoc when they happen.
Given what was happening and knowing that my emergency fund had been a relief to me during quarantine, I chose to share with them several of the practices and habits I have incorporated throughout my life when it comes to money management and personal finances.
The first thing I shared with them was about the positive relationship I have been building with money since I was a child; which is not based on tenure and accumulation as symbols of wealth, but focused on organization, constancy and balance. I have learned to make right decisions considering both rational and emotional sides, to incorporate savings habits and contingency management, and to create a way of thinking based on prioritization, planning and implementation. If you think it, then do it; otherwise, it would disappear in a sigh.
Those who know me personally and with whom I have shared learning spaces in financial education, have noticed my penchant for leveraging our own talents and skills to achieve what we want. For example, I am a faithful believer that savings open many more doors than the debt itself, it is only a matter of setting strategic goals and working with guidance and enthusiasm to make them a reality.
And what is it that I do continuously to take care of my finances? Next, I will briefly tell you a bunch of the things that have been, are and will continue to be essential for me to get the most out of money and fulfilling fruitful finances that have allowed me to achieve well-being and prosperity.
- I take out what is left at the end of the month
If there is any money left at the end of the month, I keep it apart from my pocket and send it to a bag called «surpluses». My reason: instead of leaving it as part of the balance of the month that is going to start, I keep it away to avoid unnecessary expenses. That money could be very useful to accelerate the achievement of a savings target, to pay debt, increase contingencies funds, or simply to provision an expense that I know I will have to do later.
- Excellent debt management
In addition to avoiding unnecessarily borrowing, I try to stay at reasonably low and manageable levels (less than 20% of monthly income). Although it is convenient to create an excellent credit profile and obtain tax benefits from debts, it is not worth losing your cool with obligations that will be a challenge when it comes to keeping them impeccable. Besides, that thing of paying high financial costs when it is not mandatory, is not to my liking, that is why I spend to the extent of my real possibilities. In my opinion, it is not something boring or greedy; on the contrary, I think it would be annoying, exhausting and frustrating to get up every day, to work to pay off debt.
- Hunting-discounts always
Who said buying something on sale is just for stingy? At least I don´t. I have learned to take care of my finances as a child and that implies, knowing how to make strategic money-decisions, either in buying groceries or in the purchase of a real state property. It also has nothing to do with the amount of free time I have to go seeking for offers. A person can be busy twenty-four hours a day, seven days a week, as in my case, that I need to take care of my two children, my husband, my job, my venture -Aequam, friends and, for sure, myself. And with all that, I have the space to search and find great deals. It is all about optimizing the use of money because it «doesn’t grow on trees.»
- I prepare in advance future expenses
I have got into the habit of making provision for expenses, that is, preparing in advance to take on those high expenses that usually occur once or twice a year and thus prevent them from affecting my cash flow. These include life, health and house insurances, study and taxes. In my case, these expenses share things in common: none is uncertain, involve a significant money outflow, are necessary or mandatory. Therefore, I have preferred to be cautious than doing «financial juggling,» adding to one side and subtracting from the other.
- Build a contingency fund
I started this routine years ago. However, this does not mean that it is a habit that we can only acquire at an early age. What a key thing for me has been to define clearly and specifically what an unforeseen event means; also, a strong discipline to allocate a portion of my monthly income to this reserve (it can range between 3% and 10%). In addition, unexpected expenses are one of the main causes of non-compliance with savings goals and financial disorders because, in the effort to attend to them quickly, we end up subtracting one side to add another.
- Savings goals ON
Having a current goal allows me to allocate a portion of my monthly income and I keep the habit of saving active. In my opinion, when there are no ongoing commitments, there are a lot of expenses out of nowhere and it seems that the banknotes had wings. In addition, having a goal in the crosshairs always generates motivation, perseveration and constancy; an amazing combination to make things happen.
- Invest: without putting all the eggs in the same basket
From a young age I have had a habit of handling several «pockets» that generate some extra money or at least preserve my capital.
For me, a good option are mutual funds as there is a wide range of alternatives for all flavor and tastes. If you are not an expert investor and/or do not have the time to actively manage your investment portfolios, it is better to leave the matter in the hands of professionals, let yourself be advised and wait for investment strategies to be met.
Investments also have their challenge and the main one, for me, is not to run away at the first hint of negative results. Therefore, it is so important, to know the level of risk that each of us is willing to assume, to have clarity about the goal that we want to meet and to understand very well the dynamics, conditions and characteristics of the investment product (financial or not-financial) that we are choosing.
- I don’t mix savings piggy banks with emergency money bag
I have learned to create an individual «piggy» for each savings goal and a separate wallet for contingencies, for simple reasons.
First, if I put all the money in the same bag, I can mistakenly think that I have achieved both targets (savings and a reserve for contingency), due to a simple distorted effect of abundance. The second and perhaps most important is that in the event of an unexpected event involving spending, I could be using some or all the money corresponding to the savings goals and would have to postpone or desist from my plans for lack of monetary resources.
- Planning the future
There is no way to predict the future with 100% accuracy, it is not possible to go to the store and buy «10 bottles, bags or pounds of certainty.» So, a habit I have developed from time to time has been to plan my allowance for the future: call it retirement or well-being in the long run. It is not hidden science or advanced knowledge, it is simply an aversion to the risk of not having the ability to fend for yourself in the future, getting to depend on others to get ahead or just having the bare minimum to survive.
- Couple financial planning
Managing finances as a couple can result in assured triumphs or imminent failure.
In my case, my husband and I have created a dynamic for managing household money that has worked very well for us for more than 10 years.
The first thing is the way of thinking: if both sides share the same ideals, purposes and goals as a family, it will be very easy to join forces and achieve synergies.
The second is openness and sincerity: if everyone keeps their finances «under lock and key» and does not allow the other to have even knowledge of their approximate level of spending and income, it will be very difficult to build solid foundations for family finances because they will not be real basis.
Thirdly, do not forget that there are personal goals and avoid taking them to the final and last level. In this way, we do not make individual achievements contingent on family members because they are both equally relevant. In addition, talk openly about the priority they are going to attend, something like, «Today for you, tomorrow for me”, while we continue pursuing familiar targets.
- I take out what is left at the end of the month
When making investment decisions, savings or relevant expenses, we do it together because we believe in the goodness of collective genius.
In addition, two heads (and two hearts) think better than one. We also seek to provoke positive ideas about money in our children and accompany them to start building their oun and genuine relationship with money; demystifying myths such as «children are unable to understand what money means.»
In short, I could describe our family finances in a nutshell: efficient, clear, responsible, achievement-oriented, open to dialogue and construction, with a focus on foresight and planning, conscious and without hierarchies.
Finally, I hope that these believes, habits and financial practices that have worked for me will trigger new ideas, new purposes and allow you to observe with a more powerful magnifying glass the kind of management you give today to your money, without recrimination and feeling of guilt. On the contrary, what I would like you to discover is a bunch of new thoughts, emotions and behaviors that allow you to find new healthy ways to strengthen your relationship with money and a enriched mindset regarding money matters.
María Piedad Valero
Funder and CEO Aequam