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In Part 1 we learned that many people fail to establish productive money habits because the process seems too complicated, overwhelming, and/or because of a lack of accountability.  Part 2 explains the stages required to master your money habits and put yourself on a path to financial freedom.

Step 1 – The Past

We need some history to tell us what we have been doing with your money – normally 3 to 6 months of expense history.  That length of time gives us a solid picture of our fixed expenses (mortgage, taxes, insurance, etc.) as well as our variable expenses (dining out, entertainment, auto expenses, etc.).  However, we don’t have to wait the full 3 to 6 months to begin reviewing our spending patterns and habits to begin making productive changes.  Just thinking about what we are contemplating spending – before we do it – can make a huge improvement in our financial life!


Once we gain enough history we need to set aside 30 minutes each week (or 5 minutes every day – your choice!) to look at what we have decided to do with our money and discuss with our spouse or partner – were those good decisions based upon what we really want for our money?  Did we have less costly alternatives that would not compromise our lifestyles to great degree?  The benefit is in the review process and dialogue – what can we do to make better use of our hard-earned dollars?  Naturally we will need to acknowledge the transition from our past financial behaviors towards more productive behaviors.  Review what you have done with our spouse or partner but keep the discussion positive – what can we do better?  What do we really want from our money?  What can we “unlearn” to set the stage for a more productive tomorrow?


Step 3 – The Future

Wait a minute – what happened to Step 2?  No better time to shape the future by learning from our past to immediately decide where we want our money to go in the future.  Set the future in motion to help control the present and allow yourself the flexibility to adapt as you need to.

Let’s define the future as three buckets:  the next 30 days, the next 365 days, and the next 10-20 years.  Why?  Because those timeframes generally line up with our financial needs, wants and wishes.

Our financial “needs” include housing (mortgage or rent), food, heat and water (utilities), transportation, emergency funds and retirement (yep, it is an essential part of our budget), etc. – everything we need to eke out an existence for the next 30 days since most of these expenses are due within the 30-day timeframe.  Keep in mind though that certain expense such as auto and/or homeowners/renters’ insurance is usually due quarterly, semiannually, or even annually.  Regardless, adopt the habit of setting aside money monthly to cover these regular expenses.

Our financial “wants” include vacations, autos, home improvements, special events, experiences, etc. – things that give our life “color” and enjoyment – however you define it.  Normally our financial wants are planned and experienced on an annual basis.

Our financial “wishes” are longer term and include things such as an education funds, weddings, new homes, exotic vacations, financial freedom (aka retirement), etc. – things or events we strongly desire but could live without (or in some toned-down version) if we could not afford what we wish.

In order of priority we fund our needs first, wants second, and wishes third.  Many times, there is only so much money to spread around, and thus we need to keep focused on what will keep us in the game.  As we begin to get our debt and excess discretionary spending under control we can plan for more wants and wishes in a more thoughtful and efficient manner – rather than letting our emotions control our money.  Again, expect time for transition as we need to learn and put more productive money habits into practice.

Step 2 – The Present

OK, we learned what we were doing with our money by reviewing our past and set the tone for more productive money habits going forward.  Now life gets in the way – that is called the PRESENT!  Despite out best intentions, things happen, and we must adjust.  Well, if we created a realistic forward-looking plan for our money (aka budget) we will be setting money aside monthly for periodic discretionary expenses such as vacations, dining out, auto repairs, etc.  When an unexpected expense happens, we can adjust our monthly cash flow by allocating less to the discretionary expenses and towards the “surprise”.

Let’s say that you experienced an unexpected home repair that exceeded your home maintenance budget category by $100 – but for the month you had budgeted $150 for dining out and $200 towards your next vacation.  On the fly, you can allocate less towards dining out and vacation and more towards the immediate need for home maintenance.  That does not mean that you deny yourself a dining out experience for the month – but maybe in a less expensive format (casual fast food versus fine dining). Or you plan a less exotic vacation based upon current cash flow than you had originally envisioned (maybe a staycation – enjoying the city you live in rather than travel elsewhere).

Keep a Longer Term View

There are any number of ways to adjust to present day conditions without breaking the bank or denying yourself a well-deserved experience.  It is all in a thoughtful and deliberate process to help you make better financial decisions.  Rest assured that nearly every month will require you to make an adjustment – large or small.  The objective is to keep the longer-term view in mind – the 365-day budget and beyond.

To be successful and yet satisfied with your personal financial budget requires three things:  an annual cash flow statement (the 365-day picture), a flexible budget process or application (the 30-day picture), AND an accountability partner.

As before, you use history to help set the future budget – and that becomes your annual cash flow statement.  Then adopt the daily app to help keep establish a monthly allocation of those dollars – which gives you the “curbs” on the road to guide your spending journey for the next 30 days – “switching lanes” when you need to meet unexpected issues or events.  The annual cash flow statement and daily budget review keeps you on the right pathway to successfully managing your cash flow.

Accountability can come via your spouse or partner or via a Coach.  The accountability partner will help you stay on the right path as you internalize your more productive money habits.  Lastly, you need some “tool” to help you easily keep track of your cash flow, analyze the results, and have those meaningful conversations with yourself and/or your accountability partner.  While I have stated that automation make sit too easy for us (not the right amount of accountability check) there are tools that can provide the right balance, making our job easier, quicker, and leading to productive money habits.  Part 3 will outline such tools so stay tuned!


I help my clients align their purpose, their passions, and their paycheck to achieve financial freedom while realizing greater professional and personal satisfaction from their careers.

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