I was reminded again this week that if you’re really serious about building wealth the right way, you have to know the answer to two very important questions.
Counseling a couple this past week, I listened for nearly an hour and a half about the financial chaos in their lives. A chaos built from a big mortgage, upside down car payments and leases, vacations and special occasions financed by credit cards, and daily living outside their means. A financially chaotic life of chasing The Jones, aka Jonesitis. When it was my opportunity to speak, I asked them two simple questions. Two simple questions that brought their entire financial chaotic life into focus:
“First, tell me on an annual basis how much net income is coming into your “life business”, your household?”
Not surprisingly, they knew the answer; most people do.
And then I asked the big one:
“How much does it cost to run your “life business”, your household, for a year?”
After a blank stare I asked it another way:
“How much would you need to put in the bank on January 1st to last you until December 31st? That’s groceries, utilities, vacations, clothes, dining out, car payments, house payments, medical costs, etc. How much would you need? Oh, and don’t forget you need to be saving for your kids’ college and your retirement dreams.”
After an awkward pause followed by a lot of hemming and hawing, it became evident that this couple didn’t know how much their “life business” costs to run for a year. On one hand they knew how much money was coming in, but on the other hand they didn’t have a clue how much was going out.
Their “life business” is doomed to failure
if they can’t develop a plan for answering both questions.
So let me ask you about your “life business”.
Do you know what your annual income is? And, do you know how much it costs to run your “life business” for a year?
For example, imagine if you knew your annual net income (money coming in) was $100,000 and annual living expenses (money going out) were $100,000. (Which by the way is how 70% of Americans live, paycheck to paycheck.)
Do you think you would have clarity on deciding if your family should go on a $10,000 family vacation (not in your current living expenses) this summer?
YOU BET YOU WOULD.
Once you start answering these kinds of questions, understand their significances and apply them to your wealth building, an amazing process will take place: financial chaos will be replaced withwealth wisdom. Wisdom that empowers you to make financial decisions that launch you towards you dreams.
So what do you do to find “wealth wisdom” if you don’t know the answers and your financial life is in chaos? Or you know someone in financial chaos?