Having my debt under control meant that I could finally start looking at my assets- which were pretty sparse. I’ve always been decent at saving but only in the short term. Generally I would save for something I was going to buy, like a plane ticket or laptop, instead of saving for emergencies.
The stress of living paycheck to paycheck with nothing to cushion unexpected financial blows was getting out of control. And I wanted control. I started to intentionally building my assets in an way that would relieve my stress and give me a sense of security.
Added a cushion to my checking account:
One of the things that stressed me out most about my money was that I didn’t have any extra money in my checking account if things went away. I was constantly having to check my account balance when bills were coming in to be sure that I wasn’t going to over draw the account. If a client paid me late, I was screwed.
This was because I hadn’t built any cushion into my account. Instead of having a zero number that actually gave me some breathing room, my zero number was, well, zero. Initially my ideal float number for my business checking account was $1,000. I wanted to know that whatever happened, there was still $1,000 in there.
So I made it happen.
I got paid for a big job and didn’t move that money anywhere or spend it. I pretended like it didn’t exist and left it right where it was.
Ahhhhhhhhhh- the relief of having that cushion drastically changed my practice of actually looking at my checking account. Before, I would bite my nails worrying there was only $63.76 in there. Now, no matter what, I know there is at least $1,000. If a client pays me late, I’m not worried because there is something to catch me.
I had one month where 3 clients paid me late (as in well into the next month) and my account dipped below my float number to pay my bills. If this had been pre-float days, I would have been STRESSED OUT, but with the float, I just went on with my life, knowing that the bills would be paid and so would I.
What I do now: I consider the $1,000 in my account zero money. It isn’t money there to spend, it is money there to hep me during ebbs and flows of payments. It always comes back. It never gets spent. If I want to buy a new camera, I don’t have an extra $1,000 to spend on it in my checking account. I have whatever I’ve saved. This mindset has kept my cushion- well- cushiony.
Every year I make a goal for both my personal and checking accounts of how much I want to float and how I’m going to make it happen. For my business model I have two options. The first is to allocate big project money to the cushion, like I did initially. The second is to pick how much I want to build into the cushion monthly and intentionally not spend or transfer that money out.
This year I am doing a combination of these two options. I had a project where all the income went to my cushion and I had several big months where I decided I wanted to allocate part of the extra income to my cushion. Combining forces gets me to my year-end goal.
Prioritized what money went into savings:
For a long time I had no savings. I had whatever my bank forced me to put into savings OR I had savings that I would spend eventually (like saving for a big trip). I didn’t have savings for emergencies. Being young, I figured I would be more or less fine.
Well guess what- sometime down the road I have to have foot surgery. After the surgery I will be on crutches for 2 months and in a boot for 1 month. In addition to the cost of the surgery, I also have to pay for dog walking and transportation because I won’t be able to drive to my clients. When I found out about the surgery I still had no savings. Luckily, the surgery was an eventually thing which gave me time to get real about saving.
To start saving, I picked two big projects from my year and decided that money would be go into my saving account. Then I follow through and actually put that money into my savings account.
When I transfer money to my savings account the transfer process is my contract with myself that I’m not going to spend the money.
I intentionally and deliberately pick the day and time I transfer the money so I can sit down and really agree to that promise. Once it is in, in my mind it’s untouchable.
What I do now: The most important thing I do now is I don’t spend my savings. For me my savings are for emergencies. And when I say emergency, I mean a real emergency not these-super-amazing-shoes-are-on-sale-and-I-need-them-right-now emergency. I put saving into my budget- there is actually a line on my budget for how much I want to save a month and that line is as real and as important as everything else in my budget. Saving is no longer the first thing to go- it’s the last.The act of transferring money to my savings is a contract with myself that I'm not going to spend itClick To Tweet
Started contributing to a ROTH IRA:
I mentioned in The Ugly post that saving for retirement as a self-employed person felt like a myth. For many years I couldn’t fathom how I would ever get to that place while living paycheck to paycheck and, because retirement is such a long way off for me, it was the bottom of the priority list. Ok that’s a lie- in reality it wasn’t even on the priority list. In fact, I went through several years convinced that I would never retire.
Finally, I got sick of myself and this mindset and decided to stop thinking about my life on these terms. I transferred a smaller 401(b) that I had from a job in my 20’s into a ROTH IRA and set up an automatic monthly transfer. At first, I figured $50/month for my retirement savings.
Then I decided that it felt too comfortable. If I really wanted to make retiring a priority (and live according to my new mindset) I needed to stretch myself. So I doubled it.
I decided that my future was more important than going out to dinner an extra time a month. If I was going to push myself in any direction, it would be in this one.
What I do now: I have agreements with myself about how, if my income reaches a certain level, I will increase my retirement savings by X dollars. I also have an agreement that every year I will increase my retirement savings by at least $50/month. This agreement serves me in two ways. First, it pushes me to continue to look for innovative ways to grow my business so I can increase my savings comfortably. Second, it forces me to actively prioritize my future. I can’t just forget that it’s there- every year I have to take a specific action to build it.
The next step in my journey? Perhaps the hardest- living in partnership with my money.
How can building your assets enhance your life? List three ways you can start building your assets. How can you start today?
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