There are two ways that we create fake financial wins in our lives. Today, I want to explain how we create them. I also want to provide you with some solutions for creating real financial wins.
When it comes to how we approach life, our brain works in two parts. We have the conscious mind and the subconscious mind.
The conscious mind of your brain is the part that loves spreadsheets. It wants to know that you’re achieving your financial goals. It likes knowing that you receive a consistent amount of money every payday. And that you’re saving money and paying down debt over time.
Your subconscious mind wants to know what is going to happen today. It’s caught up in the moment. It wants to enjoy life, but it gets distracted by the little things. Its primary purpose is your survival.
Because of this, sometimes these two parts of your brain can have a disagreement. This leads to self-sabotaging behaviors. And when it comes to money, one of the ways we self-sabotage is to create fake financial wins.
Are you overcomplicating your financial situation?
One of the ways I see clients fake financial wins is by overcomplicating their financial situation. There is no clear system of cashflow. I’ve seen people pay bills with a credit card while paying off the credit card with a personal loan. Or they place money in two or three different savings accounts and a checking account or two (or three or four). Money is always moving and there is no clear path. They’re spending their time and energy moving their financial life around. It feels like financial success, but there is no growth.
Another way I see clients fake financial wins is by using credit cards to make purchases. They will use one credit card for bills and a second for spending. By doing this, they’ve created a situation where you can’t clearly see the money. Plus, there’s a lot of room for overspending.
In each of these cases, clients are doing the best they can to achieve a financial goal or success. Instead, fake financial wins are making it feel like there is more cash flow than there actually is. Money is moving, but it’s only moving around, not up. They feel successful because they literally have their hands on their money.
Have you refinanced before addressing debt habits, behaviors, or mindset?
When a client comes to see me to address the debt, very often it is not the first time. They might have credit cards that have now become personal loans. They haven’t addressed the habits, behaviors, or mindset that created the debt in the first place. Sometimes they’ve even refinanced the house to pay off the personal loan and credit card debt. It wasn’t long before they found themselves with credit card debt and a personal loan again.
It’s a cycle.
They’ve created fake financial wins by paying off their debt, only to find themselves back in debt again. They haven’t paid off their debt. They’ve only refinanced it.
People have refinanced their debt and been successful. In doing so, you have to be aware that you are taking equity from your home to pay consumer debt. It’s not a win. It creates a feeling of free cash flow because the payments are usually lower. But they’re not making real financial progress. Their net worth has decreased.
Two Things You Can Do To Avoid Fake Financial Wins
1. Create a Clear and Concise Cashflow System
If you’ve been following me for awhile, you know I teach The Invisible System. It’s a cashflow management system that divides money into five different categories. You have your Keep Money (retirement), Bills (monthly expenses), Working Capital (irregular expenses), Important Things (money for pleasure), and Pocket Money (weekly spending).
I have found this system to be most effective and have implemented it with hundreds of clients. But it’s not the only system. As long as you have a cash flow management system that is clear and concise, you can start having financial wins. You want it to be clear enough that you know when your credit card balance is going up by X number of dollars, the payment amount needs to go up, too.
When those things become unclear, that’s when there’s a problem. If you have a mapped out cash flow system, you are going to be in much better shape financially.
2. Check Your Progress on Your Net Worth
Your net worth is the total of all your assets minus your liabilities. This is going to be all the assets that you own. It includes your house, money, and bank accounts. Then you want to subtract your liabilities. This includes your loans, credit cards, student loans and mortgage.
If you are young, twenties or thirties, there is a chance you may have a negative net worth. You may have large student loan balances and a new mortgage, which doesn’t allow for a lot of equity in your home. If this is where you’re starting, that’s okay. You need time to grow your net worth. But, that doesn’t mean you should wait to keep track of things. Your assets should be growing monthly, even if it’s only a little.
You also should be seeing your retirement account and savings grow. Your debt should be coming down. In a refinancing situation, you’re not going to see your net worth grow, even though your cash flow feels a lot better.
When you track your net worth over time, you start to see real progress. This is when you have true financial wins. Feel free to leave a comment below and let me know what you think or any questions you might have.
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