I used to be the girl who never wanted to look at the numbers on the ATM receipt after I’d deposited money at the bank. It’s not that I didn’t have enough money in my bank account to pay my bills. I just didn’t want my day to be defined by the number in my bank account.
Life turned upside down for me when I got divorced in my early 30s, and I went from the girl who never wanted to look at the numbers, to the girl who had to look at the numbers. This turned out to be the best thing that’s ever happened to me.
Click to read more about the true cost of divorce in America.
There is really no such thing as an easy divorce. Most are both emotionally and financially draining, mine included. Even as a certified financial planner, I still found myself having to deal with some tough financial decisions that would have a long-lasting impact on my future.
It was during this time that I realized the power of knowing my numbers: the good, the bad and all the in between. Divorce can feel like a giant chess match where you’re trying to outsmart the other person financially. Knowing my numbers empowered me during a difficult time in my life and gave me choices with my money. I certainly don’t want you to experience anything quite as complicated and financially devastating as a divorce, but no matter what situation you’re in, knowing your numbers is a lifesaver.
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There’s a Road Map
You’d never get in the car to drive to New York from Los Angeles without some kind of road map or GPS system. How would you know where to turn and which freeways to take? Knowing your numbers is a very similar concept. When you know what you have coming in and what you have going out, you can give your finances directions toward the goals you want to achieve.
Figuring out what’s coming in is always the easy part. Things get a little trickier when we’re talking about what’s going out. This is the part where most of us, myself included at one point in my life, would rather close our eyes and live in a delirious state of denial.
Knowing where you’re spending each penny that flows out of your bank account will allow you to spot patterns in your spending. From those patterns, you can begin to decide if a) you want to keep spending that amount or b) you want to make some changes to your budget. Regardless of your financial situation, you have choices with your finances.
Better Money Decisions
Knowing my numbers allowed me to make better money decisions when I was getting divorced. I could figure out my baseline number, aka the amount of money I needed each month to cover all my fixed costs such as rent, car payment, student loan payment, etc. Once I knew that baseline number, I could make calculated decisions about my plan for any excess funds each month.
We all think that the more money we have, the better our financial situation will be. While that is true to a point, if you don’t know your numbers and what you need to live on each month you can find yourself in a position of lifestyle creep. Lifestyle creep is just like it sounds — a place where the cost of your lifestyle keeps increasing as your income increases, so you’re never actually getting ahead. It’s the reason why millionaires can still live paycheck to paycheck.
There is no time like the present to roll up your sleeves and dig into knowing your numbers. You can start by simply analyzing your last month’s bank statement and categorizing your spending. There are many great mobile apps as well that can help you like You Need a Budget, Qapital and Mint. Once you understand where your money is going, you can begin to make powerful shifts to redirect some of your spending toward all your money goals.