Family Finance
Module 5: For better or worth
In this module we are going to meet those old adversaries Time and Money.
If they would only get along better we would all have easier lives. But it seems that as soon as we have enough time, money disappears and when we get money back into the picture, Time has somehow becomes limited.
Balancing time and money
This is one of the greatest challenges of our modern families. This year for the first time ever, the number of working mothers out numbers non-working mothers. And that despite the fact that there is strong evidence of the reluctance to work among some mothers
A study by Dr. Catherine Hakim. of The London School of Economics found that “four out of ten full-time working women would rather be at home full-time.” That’s nearly 50%. What’s driving them out to work when they would clearly rather have Time at home?
Of course it’s Money!
I’m not going to bore you with a regurgitation of the prolific statistics on what it costs an average family to live. They’re in every daily newspaper, every day, and it is obvious that it is a real problem.
Meeting the financial demands of today’s family is an enormous pressure and leaves little room for reflection on how time is spent. And who needs to ask anyway? Time is clearly spent earning a living, juggling commitments, raising the kids and if you are lucky, managing one holiday or a night out once in a while in an attempt to relieve the stress.
What happened to the simple dream that seemed eminently achievable?
You go to college/university, get the qualification, get on the job ladder, work your way up, buy the house, have the kids, the cars, the holidays. One day the kids go off to work, you downsize the family home, buy a second little cottage in the sun and retire gracefully. The kids go on to follow the same path and live equally wonderful lives.
It’s not working.
Somewhere along the line, the income requirements spiralled while income itself stagnated.
The result is that many families are having to use up more and more of their time earning the money to just keep up. Many families are “Cashing out,” the term given to those who decide that the professional dream is not matching up to expectations. Last year, “The Good Life” became one of the most watched repeats on TV. And I am sure you will have noticed all the documentaries on families selling up and moving abroad in search of sun, sea and simplicity of life.
I’ve been one of those families and I’ve worked with those families.
The pattern that emerges is a clear one. Whatever money attitudes you have where you are, you bring them with you to your new life and re-create the same scenarios in your new location. So whether you are going to start all over again or not, why not just begin to deal with the money bogeyman where you are now. That way, he won’t find his way into your suitcase and if you do make that move, you’ll be free to get on with it with a secure financial background.
Getting the Balance Right
When you get the time vs money balance right for you, your life will change beyond recognition. It’s an intensely personal thing. How much time and how much money you need, and in what proportion to each other, is specific to each individual. In this module, we’ll address how you can begin to quantify those for yourself.
Let’s look at what you earn.
Your working hour has a value that is a very important component of your financial life. And your hourly rate is either good enough for you or it is not.
You don’t really need some calculation to tell you if you feel that you are being paid what you are worth. You already know that in your gut. But you can look back at your list from last module. Did you end up with a net profit or loss?
If you had a net loss then you clearly believe you deserve more things in your life than your hourly rate allows you to afford. And look at your “must have” and “nice to have” lists. Can you afford your must haves? Can you afford your “nice to haves?”
Bear in mind when looking at these numbers, that I mean the real kind of “can I afford it” which is the “can I pay for this in cash today without using credit or taking money from my 10% personal financial future” kind of affording it.
I often tell the story of a lady I know who was married but considering divorcing her husband because she felt his real love was his work. I feel it is worth repeating here as one of the best examples of how our partnerships flounder under the time/money issue.
Her husband worked all hours possible and rarely was home in time for dinner. The children were always in bed when he got in and weekends he was so tired he slept or vegged out in front of the telly. They had a beautiful house, nicely decorated and with all the mod cons. They drove really nice cars. The kids had everything they needed. The only thing missing was their father being around and she had had enough.
Over lunch one day, as she insisted in picking up the check, I asked her why she would put her marriage at risk over me when I wasn’t a particular friend. She stared at me like I was speaking a foreign language.
I then asked her how long extra her husband would have to stay at work to pay for the lunch she had just given me. I went on to ask her how long he had to work to pay for the sheepskin coat she was wearing, the ski trip the kids had just taken and the new suite of furniture she had ordered.
It took another few minutes before the penny began to drop. Everything she spent on herself, the children and the house translated directly into hours her husband needed to work which translated directly into her thinking he loved his work more than her.
I suggested she add another item to her “Can I afford it?” checklist. I suggested she add “would I rather have this item or would I rather have my husband at home for the hours it would take for him to work to pay for it?”
We are under so much “Pressure to Purchase” in today’s society that the providers in our families struggle under the stress of keeping up. Knowing what you really want (compared to what the Jones have or what the media persuades you that you need) and together agreeing to earn for those projections is key to alleviating the money vs time stress.
Remember when your partner used to be fun. That was the pre-pressure era. Get that back now!
Hourly Value
There are two sides to the hourly value question.
One is a simple question of arithmetic. Are you earning enough per hour to pay for the life you want to lead?
If the answer is no, there are a number of ways to maximize your income. You can work for a promotion or a raise. Perhaps you can get mentored or trained for another higher paid position. You can learn new skills and offer them for an increase in salary. You can change your job for a higher paying job or start a business or second income stream part time. If you are self-employed you can raise your hourly rate, work more hours or offer more services. These are just simple ways. There are lots of creative ways to increase your income specific to you.
The second is a more emotional question. Whether you are employed or self-employed, do you value yourself enough to ask for the hourly rate you are worth?
While you remember that your worth is not counted in money, remember that the worth of your partner is not counted in money either. You both have earning power. And that is distinct from worth. For the bills, the mortgage and so on there is money, everything else is priceless.
Actions of the Week
1. Calculate your hourly rate. (separately)
Take your monthly salary/income and divide it by the number of hours you work. Do not divide it by the number of hours you are supposed to work if you took all your lunch-breaks and went home on time every night. Divide it by the number of hours you actually work in an average month.
If you have some, do not include income that you do not work for such as dividends or returns on other investments. This is called passive income. Calculate using only your active income; that is income that you would not have if you did not put in the work to generate it.
2. What are you really worth? (separately)
Explore how you feel about your hourly rate. How does it make you feel? Are you being paid your worth? Is it smaller or greater than you expected? If it is less than you feel you are worth economically write in large red figures the figure you believe you should be paid per hour. And then write 20 reasons why you are worth that figure. Finally, write one paragraph describing your perfect work and how you would be paid for doing that perfect work.
3. Increase your income (separately)
Divide a clean page into three vertical columns and make three lists of ideas on how you can increase your income. The first list is for the short term (1-6 months), list two is for medium term (6mths – 3 years) and list three is for longer term (3 years). Make sure to put actual figures with your ideas. It is important to set real numbers targets for your mind to focus on.
4. Money or Time (separately)
Go back through your expense list and calculate the time value of the items on there. Ask yourself if you would rather have the item or the time. Write about what you learn about yourself and your ‘must haves’ with this new awareness. Do this exercise for your partner’s income also and ask yourself if you would rather have their time or the item.
5. Draft your financial plan (together)
Begin to draft your financial plan together. Set agreed net worth, spending and income targets. Agree on how you are going to manage your money and your time within your partnership. It will be a working document and will change over the next months particularly as you try, test, review and adapt what you find.
Take your time with these exercises, they will grow with you as you grow together. Next week we will be looking at some key financial milestones that you may want to build into your plan if you have not already passed them.
It’s exciting now; you are nearly there.
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