Since leaving Wall Street, I’ve undergone a personal finance lobotomy. It was neither graceful, nor planned.
For the first 13 years of my career I was fortunate to receive regular raises and bonuses. These annual increases in income became the primary metric by which I judged both my professional performance, as well as my broader self-worth. This intense fixation on earnings growth wouldn’t have been so problematic had I been equally committed to long-term wealth building. Unfortunately, having allowed my spending to track my increasing salary – a common affliction in London and New York – when I walked away from a six-figure income in December 2011, my bank balance and 401(k) were not nearly as robust as they should have been.
Over the last three years, in large part out of necessity, I’ve improved my financial habits, shifted my money mindset to focus on growing wealth and, as a result, started to get excited (yes, really) about intelligently managing my finances.
Measure What Matters
For most of my life I had zero financial discipline. This was evidenced by things like an addiction to cab rides and a penchant to pile purchases on credit cards even when I had the cash. As long as there was enough money being deposited every month to cover my bills, who cared if I wasn’t paying attention to my bank statements?
In hindsight, I should have cared.
By way of example, in a single year Chase charged me more than $1,500 in fees for automated transfers between accounts and overdrafts. I didn’t notice because I didn’t check my statements. I was also paying out hundreds of dollars in monthly membership fees for unnecessary splurges like “high-end” toothpaste and teeth whitening products. Six years after I finally cancelled that particular subscription, I still haven’t used it all up!
When I was making six-figures it was easy to kid myself that my finances were under control. From the day I signed the contract for my first job out of university, I convinced myself I was a financial winner. From then on, my money narrative was simple: income growth equals financial success. In reality, I created my own bubble and squandered an incredible opportunity to set myself up financially for the long-term.
Making Money is Not Managing Money
I’ve spoken to a number of Wall Street folk about their own financial lives and several confirmed that they never budget or track their spending. Consequently, but unsurprisingly, they have no idea what their lives really cost. I’ve also heard stories from several finance professionals, who, like me, were regularly exposed to the machinations of the markets, but never sufficiently focused on investing and growing wealth.
Truth be told, I was actually intimidated by personal finance. But there were two other key issues that were also at play for me.
First, long hours left me with little bandwidth for life outside of the office. Consistent mental and physical exhaustion meant that many non-work-related items got pushed to the backburner or, worse, not dealt with at all. In truth I knew that I was behaving badly with respect to my finances, but that served only to make it harder to muster the brainpower and emotional energy to contend with the mess. My husband’s valiant attempts to get me to track my spending and set up some boundaries were futile. To be accurate, I was just plain mean whenever he brought up the topic.
Second, I was convinced that financial planning and advice were just for “rich people.” As absurd as this may sound given where I was working, I did not consider myself to be wealthy enough to warrant seeking professional advice. For one, I was sure that I didn’t meet the account minimums for the big wealth management firms. Moreover, at the time, many of the more accessible finance products (like Personal Capital) were still just ideas on the backs of napkins. In essence, I didn’t think that personal financial planning was for people like me.
The Three-Year Lobotomy
As you might imagine, trading in a regular, not insubstantial paycheck for uncertain, fluctuating, freelance income necessitates a change in behavior, and this shift effectively shone the brightest of stadium lights on my financial incompetence. With a finite cash runway and only a nascent plan to re-orient my career, I simply had no choice but to address my past financial foibles. More importantly, I had to anchor my self-esteem to intrinsic measures in order to avoid having my emotions track the parabola of a smaller, more volatile income. This took a while to achieve, but somehow, somewhere along the way, I learned to stop conflating my paycheck with my value as a person.
Serendipity also played a major role in this shift. Early in my career discovery process I heard Manisha Thakor, founder and CEO of MoneyZen Wealth Management, speak at a conference. It was the first time I’d heard anyone talk about personal finance in a way that resonated with me. It was life changing. Manisha addressed the lack of financial confidence that can affect even the most traditionally successful people and offered some easily actionable tips.
Not long thereafter, I met Caryn Effron, the founder of GoGirl Finance, and began working for the platform. Being employed in the personal finance space provided some important motivation to get my act together. Suddenly I was exposed on a daily basis to the inspiring stories of people who were conquering much bigger financial challenges than my own – paying off crushing student loan debt, saving for graduate school, bootstrapping businesses, and enthusiastically building wealth – all on much lower incomes than the one I’d left behind. I began to see what was possible when you took control, and I also started to sense how taking control and how committing to saving could positively impact my well being.
In 2013, I discovered Personal Capital and plugged in my checking, credit cards, savings and investments accounts. This was the first time all of my finances were viewable in one spot, and the first time I’d ever measured my net worth. Seeing that figure was profound and it provided me with a way to focus on the bigger picture.
Little by little I found myself choosing savings over spending and, by extension, gaining more interest and confidence in investing. I want to grow that net worth number, but not because it’s the measure of my personal and professional worth. Rather, because growing my net worth is a way to feel secure about the future even when my monthly cash flow is undulating. Indeed, my net worth is my financial freedom. It means I don’t have to take on freelance gigs that don’t fit with my goals and values because I am saving enough to take career risks.
How to Shift Your Own Money Mindset
The good news is that shifting your financial mindset is within your reach – and you don’t need to quit your job to achieve it. I’m a big believer in change begetting change – if you start with something small, but do it consistently, you’ll see how incremental steps result in significant change. I’ve personally found that the more I’ve learned, the more confident I’ve become and the more interested I am in the overall process. This, in turn, motivates me to learn even more.
On that note, here are some, easy-to-execute tips for those of you looking to make your own shift:
- Sign-up for Personal Capital: This should be obvious, but it’s worth stating. Knowing where you stand is an important first step and there’s no better way to know than amalgamating all of your accounts (the good, the bad and the ugly). In addition to showing you your net worth, Personal Capital also offers a broad spectrum of tools to help you remediate issues. For example, I regularly download my transaction history to see if my mental money picture is aligned with the reality of my spending.
- Get rid of unused subscriptions: If you’re hemorrhaging cash on unused subscriptions (gym memberships, magazines, premium apps, or even toothpaste, like I was), search your statements (or download your transactions on Personal Capital) for these items. In just a couple of hours you can close down everything you no longer need and divert the cash to savings, investments, or paying down debts.
- Short-circuit lifestyle inflation for good: Make a commitment today (write it down and perhaps share with friends and family) to put half of your next raise towards a savings goal (or to pay down debt)? Divert the cash to something really important to you – for example, a house down payment fund, cash to start a business, or for your wedding. Giving purpose to the money can be a great motivation tool.
- Commit to a money hour every week: If an hour a week seems too much, start with an hour every two weeks, or an hour per month. Schedule tasks for each hour that you know you can complete within the time allotted. Over the course of a few months, you’ll be more organized than you ever predicted would be possible.
- Get professional advice: This can also be done via Personal Capital, and it’s even free if you aggregate more than $100K in balances. Alternatively, book a session with an independent fee-only, financial planner. Check out a platform like XY Planning Network, which list a range of professionals. Any planner worth their salt will understand that it’s never just about the money, so they’ll be able to both empathize with your fears or concerns and help you lay out those all-important practical steps towards financial freedom.
The benefits of a healthy relationship with money reach much further than your bank account, as do the consequences of an unhealthy money mindset. The journey to take control of my financial life has led to greater emotional and professional freedom, eliminated the taboo (and trauma) of discussing money with my husband, and resulted in a healthier bank balance despite a drop in income. Granted, it is painful to tackle one’s bad financial habits, but the return on investment is beyond measure.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.