Whether we like it or not, money tends to be an emotional topic and each of us has our own relationship with money based on our personal life experiences. When managing your finances, one of the best things you can do is to minimize the amount of stress that money adds to your life. With that in mind, this episode is dedicated to sharing tips and suggestions for what you can do to improve your relationship with money. We discuss giving yourself a cushion and living within your means, understanding the purpose of money, understanding your personal money script (and that of your spouse or partner), having a money plan that you understand in your own terms, finding the right balance between preparing for the future while enjoying things along the way, and more.
Outline of this episode
- Giving yourself a cushion and living within your means [1:19]
- The purpose of money [5:44]
- Money scripts. What’s yours and why? [8:48]
- Having a plan that you understand in your own terms [12:33]
- The recap [17:26]
Living within your means with purpose
The first area to address is having enough money coming in to cover your day-to-day known expenses without stressing about how to make ends meet. This isn’t a lecture about laying off the Starbucks but it does come down to living below your means to provide a buffer. After you have your known expenses covered, the second step is having enough in an emergency fund. This is money that's available to cover any unknown expenses in the future and it acts as a cushion.
Then moving up the "hierarchy of money," and after you've reduced (or ideally eliminated) the stress money has on a day-to-day or month-to-month basis, you can zoom out to understand what the purpose of money is. Money is simply a means to an end and is a tool that can provide you freedom, flexibility, and time. However, it's important to understand the trade-offs of time versus money to strike the right balance for you.
Understanding money scripts and having a plan
Knowing the purpose of money is great, but you want to take it a step further to understand your unique money script, which is the way you view/contextualize money and is the culmination of many factors based on your experiences and natural tendencies. Once you understand your money script and your spouse's money script, you can determine if there's anything you should challenge or work on changing to have a healthier approach to money and financial decisions. It's easier said than done when challenging or changing your money script, but one of the best ways to work on this is by having a financial plan or roadmap based on your unique situation, goals, and preferences. Having this roadmap allows you to project out into the future to understand what's required to meet your goals and gives you guidance on what's required today, in order to meet those goals. Armed with this information, you can make intentional decisions as to what's most important between enjoying certain things today, relative to providing flexibility and options in the future.
Finding balance that's tailored to your needs
We think it’s important to focus on balance to tie everything together. There's no one size fits all solution or shortcut way to having no stress around money or your finances. The best approach usually involves striking a balance of planning for the future while enjoying things along the way.
This is where you want to understand the trade-offs you would be making to reach your desired end state or goal. If you save every penny, you're giving up time that you'll never get back. Whereas if you spend every penny you're enjoying more today, but at the expense of limiting your options in the future. Everyone is unique and we're not trying to dissuade anyone from working toward whatever goals are most important to them. Rather, we're trying to help people avoid going down a path with a "grass will be greener" on the other side mentality. More often than not the people who have the most peace of mind with the least amount of stress around their finances are those who have a healthy balance across multiple areas. For example, having their day-to-day expenses covered, an emergency fund to provide an extra buffer, and living below their means, which gives them an extra cushion and allows them to save and remain ahead of schedule for their future goals.
Resources & People Mentioned
- Download our guide: The Toolkit for Optimizing Your Finances as an Employed Physician
- Download our guide: The Financial Checkup