(And how most people fail by only focusing on one)
When it comes to making the most of your money, did you know there are TWO jobs that you need to master to achieve greater Financial Freedom?
If you said NO to the question above, then you’re not alone. Most people overlook the second job because they are focusing too much on the first job. By doing so, they miss out on all the benefits job two offers - both separately and in conjunction with job one.
To explain what I mean, let’s look at a similar example from the Health and Fitness community.
Common knowledge for many gym goers is that 80% of your results come from your diet. When it comes to losing weight and looking better you’ll often hear people say things like “abs are made in the kitchen, not in the gym” or “you can’t out-train a bad diet”. And from my previous work as a Personal Trainer, I agree this is true. That’s because, just like with money, there are two important jobs to master in order to improve your health situation. The first one is exercise and the second one is eating a balanced/healthy diet.
However, despite the importance of diet now being common knowledge across the Health and Fitness community, many people still focus too much on job one – exercise and focus too little on job two – diet. And for that reason, most people spend a lot of time doing a lot of hard work for little reward or results. If they just flipped it around and put more emphasis on being better with their diet, they could achieve the same, if not better, results with much less effort in the gym.
The same is also true for many people when it comes to their money. Most people spend a lot of time and effort working hard to earn enough money to afford a good lifestyle and yet have very little to show for all that hard work. And that’s because like the health example above, they are too focused on only one of the two important jobs. And the job they’re ignoring is the one that has more direct influence over their Financial Planning.
Now, when it comes to your Financial Planning, the first job for you to master is obvious, it’s all about making money. That means earning an income and includes all the work and effort that goes into climbing the career ladder or building a profitable business. This work is not easy or fast. It takes up most of the hours available during a typical week. It’s where most people spend half their life, especially if they burn the midnight oil and turn a typical work week of 40 hours into 60, 80 or even 100 hours.
Now don’t get me wrong, I’m not saying earning more income is a bad thing. In fact, earning more income is a good thing, but only to a point. You see once you’re earning enough income, you’re focus should become less about making money and more about making the most of your money – which is job two.
From my experience working in Financial Planning since 2010, I’ve come to realise that managing your money is a lot like dieting. It’s responsible for 80% of your results. When done correctly, it compliments your hard efforts for job one. However, when done poorly, it can also undo a lot of your hard work from job one. And this is something I’ve seen play out in real life many times.
During my career, I’ve met (too) many people (doctors, lawyers, engineers, pilots, professionals, etc) earning a decent/high income ($150,000 - $550,000) who have still not achieved financial freedom in the way they or many others would’ve expected. Instead, they often share the same problems and fears as many other people earning a lot less than them. The only difference between these high-income earners and the lower income earners is the number of zeros involved in their financial situation as well as the level of luxury they have in their personal situation. Outside of that, they are in very similar financial positions to everyone else. It’s all just relative because most people spend what they earn (and then some). So, despite the difference in income, these high-income earners all have financial stress, they all feel a sense of financial pressure and they’re all unhappy about their lack of financial security long term.
The other problem that comes with trying to earn more money as the only way to improve your Financial Planning is that at any moment your income can be reduced or disappear, due to no fault of your own. Things like redundancy, health problems, offshoring, technology advances and government changes can all negatively impact your income earning ability. Now if that is your only strategy for attaining and maintaining financial freedom, you’re running a big risk. Especially given that research shows most people couldn’t last a month or so without their regular income.
I think, the main reason why most people put too much focus on job one is because they are telling themselves a story that they need to have more to be happy. More money, more stuff, more income. But as I shared earlier, most people I’ve met that have more of all those things aren’t much better off than most others and they’re still telling themselves they need to have more to be happy. And so, the vicious cycle continues until it’s too late…
So, if only focusing on income is not the best way to improve your Financial Planning, then what else should you be focused on? What is the second job to master?
The second job I'm talking about, is becoming a master of personal money management. In simple terms, this means mastering 3 Core Areas, which all work together synergistically to maximise your financial situation. They are;
Cashflow Management (Spending)
Creating a surplus from your income and expenses for wealth building purposes.
Running your bank accounts in an efficient and effective way to support the above aim.
Ensuring you use and structure your debts appropriately to reduce interest and your ongoing repayment commitments.
Wealth Creation (Saving)
Saving for short, medium and long-term goals so you can achieve everything you want.
Paying off your debts as soon as possible so that you’re not in debt for too long and can have more freedom in life.
Investing in growth assets (ie property and shares) to build wealth for the future and achieve greater Financial Freedom.
Being smart with your Superannuation so it grows over the long term and you can retire comfortably (and as early as possible).
Minimising tax where possible so that you keep more of your money in your pocket.
Contingency Planning (Safety)
Making sure you have money set aside for small unexpected events that pop up in life.
Putting in place personal insurance as a financial safety net so that you can maintain dignity and quality of life in the unfortunate event your health is badly compromised.
Ensuring your Estate Planning is up to date and in line with your wishes so that the right people receive your assets and/or can take care of you medically and financially.
By mastering the 3 areas above, your financial situation will improve both now and, in the future, because you will get a lot more reward from all the effort you put into earning an income. Not only that, you will also remove a lot of the risk associated with losing your income because your financial position will be much stronger and can provide you with a buffer while you look to replace your lost income. And to get all those benefits, all you have to do is make your money work as hard for you as you do to earn it in the first place. Think of it like this, job two is all about ‘Doing more with what you have as opposed to having more than what you do!’
Now before I finish, you might be thinking, “Shit! That sounds like a lot of hard work and I really don’t have the time, energy or desire to spend whatever free time I do have available on becoming a financial expert!”
And to that I say, I hear you. It can be hard to get good at this stuff. But, the good news is that job two is not something you have to do all by yourself. Unlike job one where you are the one who must do all the work in order to receive the income (no-one can do your job for you), job two is something you can get help with in order to become better at it.
This is where working with your own personal Financial Adviser comes into play. By working with an Adviser, you can have a coach on your side to help you come up with the best strategies to get ahead and then put them into action together. Heck, if you really want, you can even just outsource/delegate all that work to your Adviser completely. That way you know you’ve got an expert in your corner to make sure you’re doing the best you can across all 3 Core Areas and they just keep you up to date with what’s going on and why that’s best for you. That is exactly the types of relationships I have with my clients. We either work together collaboratively or I work for them proactively, to ensure they are mastering job two so they can attain and maintain their desired level of Financial Freedom.
So to wrap up, if you want to give yourself a better chance of achieving greater Financial Freedom, then it’s time to put some focus on job two. If you’re doing it by yourself, take some time to learn about each of the 3 Core Areas and workout what you need to do in each to best suit your situation and goals.
However, if you know this is something you want to get better at now, but you just don’t have the time or interest in doing it all alone, feel free to touch base with me via phone or email and we can discuss the best way to work together to improve your Financial Planning now and long term!