How do you turn up the heat with your financial temperature as a burnt-out employee?
Your financial temperature shows your attitude towards money. Are you a spender or a saver? Do you have friends whose behavior with money is the same as yours or the total opposite? Have you ever wondered how sometimes you’ve received a bonus or an additional income on the side but it just doesn’t seem enough? Or you’ve felt that your financial situation doesn’t get any better. Here are 4 steps of how you can increase your financial temperature just like the little girl in the GIF! 😂
Have you ever seen news or articles of lottery winners who filed for bankruptcy a few years after making it big and wondered how that could possibly happen? Have you always wondered where did all your earnings have gone at the end of each month as well? If any of these questions have come to your mind, you would have noticed that many people have a default position when it comes to money. All of us have an inner monitor or a thermostat that responds whenever our financial temperature falls above or below a certain set-point.
But first, before you learn how to turn up your financial temperature, it’s important to know where you’re starting from or your default temperature is as well. Here are a series of questions I’ve used from Susan Hayes — a personal finance expert from Ireland who’s learned how to manage her finances the hard way in her early days and is currently educating teenagers on financial literacy through her published textbook for secondary schools in Ireland. Be honest as possible when answering these questions so you will be able to face those money fears and solve them.
What’s your default temperature?
These are 3 hypothetical situations. Imagine what you would do in each of these. I’ll share my answers as well! 😁
- You check your bank account and you have an extra $50,000 in the bank. How do you feel? What are you going to do?
a. Delighted! I would take $20k off the mortgage, book a holiday for $5000 for the family, go on a spending spree!
b. That’s about a year and a half’s wages. Wouldn’t it be nice to take a year off and travel or spend it at home? But, what if I didn’t get my job back?
c. That would be nice! It would great to have such cushion build-up.
d. It’s a start anyway…
e. That equates to $1500 interest, assuming a 3% interest rate.
2. You check your bank account again, you see that you have to repay a $50,000 loan. How do you feel? What are you going to do?
a. Panic! I need to budget to find every cent available to pay that down.
b. If anything happened to me, at least my family could benefit from the write-off of the loan.
c. That’s not bad! I might borrow more so that I can put it to good use. After all, I can make more of a return on it than the interest the bank is charging me.
d. So what? The repayment is about $400 a month. It’s just like the electricity bill or the groceries. It’s just another payment.
e. At least when I get that reduced, I can go back to the bank and get another loan to get the conservatory I’ve been dreaming about.
3. You check your bank account again, and you have zero ‘net wealth’. The amount you have cancels out the amount you owe exactly. How do you feel? What are you going to do?
a. Relief! That’s great now, I can pay it all off in the morning.
b. Why would I not just pay it off, then?
c. I wonder what I could borrow and buy?
d. OMG! I’m a paycheque away from being poor!
e. I need to make a lean budget and save, save, save!
The first scenario is testing your default financial thermostat, the second scenario is testing your attitude to debt and the third scenario is testing your reaction if you were given the choice to cancel out debt. Here’s the interpretation of the answers you’re chosen!
1a) Very comfortable with more money but find ways to spend it. b) Too secure and dependent on your job. Have the fear of money running out. c) You’ve hit your number. d) You haven’t hit your number and you don’t feel ‘financially safe’. e) Savvy and don’t have plans to spend this money. It’s okay if you don’t have an emergency.
2a) You’re allergic to owing anything. You feel relieved when you get something paid off. b) Most people have this thought but introducing the ‘Rule of 72’ which states the length of time it takes to double your money does not make sense if you don’t die. You’ll end up paying more interest if it doesn’t happen. c) Smart thinking and someone who has a certain amount of confidence about money. Likely someone who picked e in the first question. But be aware of the risk if the interest rate goes up. d) Very comfortable with debt and not healthy. e) You’re a lender's dream! You must change your habits.
3a) Your financial thermostat is zero and that’s all. Not more nor less. b) You don’t like debt which is good but remember to also have rainy day funds. c) Your financial thermostat is below freezing! Not long after getting out of debt, you're soon into it again. d) You clearly do not like debt in any way, size, shape, or form. e) Your thermostat is in warm territory. You want a positive amount of money left when you take away what you owe.
What are my answers? — you might ask. I’ve placed my answers as 1e, 2c and 3e. It’s because most of my financial decisions are based on opportunity cost. See here to know how and why I made my decisions. If you’re aiming to be debt free, its likely that your financial thermostat is set to zero but if you’re aiming to be financially independent, then it’s very likely that your financial thermostat is more than zero but if you don’t aim for any of these, its likely that your financial thermostat is less than zero!
Steps to increase your financial temperature.
Step 1: Identify your goals
Start by ‘day-dreaming’. Not kidding. But make sure it's not pie-in-the-sky talk. If you want to set new goals, the first step is to dream. Think of something you’ve always wanted to accomplish in your finances. What’s the best that could happen? What would your day look like? List it out! As for me, my goal is pretty clear — to have a USD100,000 investment portfolio, obtain a passive income of USD2000 with a mortgage repayment of not more than MYR2000/ loan value of less than MYR350k, and have an income from a job I’m passionate in of MYR100k. Travel to all the Disney parks in the world (when traveling permits) Timeline — of 2 years.
There is a saying, ‘Goals are dreams that mean business’.
Step 2: Identify your realities
Facing realities can be harsh as it takes away the hope of you accomplishing your goals. In other words, they’re your doubts and fears. Before one can take the next step, it's important to bridge the gap between your new vision and current reality. Although it’s painful, I encourage you to do it. List out your fears and doubts for not attaining it. What is going on with you currently? What could hold you back? Why is that you think you can’t achieve what you want? It could be a surprisingly short list or a long list of reasons why you can’t move forward. To reconcile your dream vision and your list of obstacles, you’ll need to break down your big, insurmountable mountain of anguish into bits and pieces. Next, is to pull up your sleeves and to look objectively and openly at each problem on your list. This is where your dream begins to mean business. Go through the list and see if you can come up with a strategy for dealing with every item.
Have you ever had to take on a huge commitment and felt overwhelmed by it but you didn’t have a choice? But because you had to commit to it you plowed on and then suddenly you arrived at the end. You felt happy and proud that you have somehow accomplished it? It’s the same principle that I encourage you to implement.
For me, it was always a struggle to grow my investments at a fast pace, finding the right property or rather the first property to invest in at the conditions I’ve set and finally knowing how I can enjoy working in a job that I love while not being financially constrained. Most people have the belief that you can work at a job you hate but have the income you need to survive or that job you love but the income you can’t sustain in. What if I could have both? So by breaking down my goals into smaller mile stones while persevering and having the patience to keep taking consistent action, it does pay off!
Step 3: Identifying your options
This is where you find different solutions out there to solve your limitations or your problems. Work out exactly what you need to do to deal with the real issues. It’s finding out different alternatives for your solution. Also, you could’ve identify ones that could be just your own fears. For me, growing my investments by a big sum could be overwhelming. Let alone learning of different asset classes to grow my investments. So, by researching on available options that made the most sense to me was the start. The fear of losing money was also a barier that has stop me from getting started in investing.
Step 4: What are you going to do next?
It’s deciding the choice you’re willing to make. Are you still going to pay down your mortgage after knowing that being debt free is not the goal you’re seeking for and you’ve learned of a safe investment asset that could generate you a much higher return than the liability you’re in? Although I felt overwhelmed by my huge goal I’ve set, one of the ways I use to solve it is to constantly track my monthly savings rate (budgeting) and dollar cost averaging it into stocks that I’ve vested and researched on (forecasting) has helped me to have a clearer certainty of me obtaining my goals. Getting started with a small amount into investing was also the option I chose to get used to the volatility of the market. (Dipping my toes)
In conclusion, if you’ve ever wondered why your financial standing does not improve over time, a quick look into your default financial temperature could be the reason why. If you’re unsatisfied with your defaulted temperature, there’s always ways of turning up your financial temperature with setting goals, facing realities, identifying your options and finally selecting those that make the most sense to you. At least that’s what I’ve done. 😄