One Key Number Can Help…
The first step to being able to pursue any project, business, or passion from a place of financial freedom is managing how you think and feel about money. When you’re in a helpful headspace you can focus on exactly how you want to manage your finances. A clear and focused mind can make informed decisions based on hard numbers instead of guesses. Knowing one key number in particular can be crucial in navigating transitions or life events like starting a business or pursuing a passion project. Before I outline exactly what that number is and how to find it, let’s remember that feeling free doesn’t come from a number. It comes from your thinking.
When you come from love, abundance, and freedom with your finances, it’s easier to take an active role in managing your money and therefore, it’s easier to find financial freedom while pursuing your passion. In another post I explain how to feel better about money. There we learn how to choose what we think about money, no matter what the actual numbers are in our bank accounts. That post also offers a few thoughts that could help you feel better about money right now.
Have you ever heard the acronym for fear? It’s false evidence appearing real. When you approach your finances from fear, scarcity, or restriction, it feels awful and you may struggle more than necessary to reach financial goals. When considering the passion project or business you would love to pursue, many people tend to ask themselves things like: How do I know how much money I’d make? Would I be able to pay my bills? Would I make any money… at all?
These questions are just thoughts in your head. Thinking like this does not move you forward.
Instead of ruminating on worrisome questions, let’s answer one. A very important one. One you’ve probably asked yourself when you considered pursuing your passion over the years.
How long could you survive without any income?
The answer to this question is referred to as your reserve.
Figuring out your reserve is pretty simple, but that doesn’t mean it’s easy – especially if you haven’t done it before. Here’s how it works.
How much do you spend each month?
To determine your reserve, start by figuring out exactly how much money you spend on a monthly basis. This number is called your monthly spend or expenses.
Notice your brain may want to resist this very, very important step towards financial freedom. Your brain may offer a thought that it isn’t possible for you to determine this piece of key data. Yet, it is possible. It’s math. It’s numbers. That’s all.
Don’t guess your monthly spend. Guessing is just more thinking. Guessing is not real. Making decisions based on your thinking or feeling is not how you make informed decisions. The only way to make an informed, data-driven decision, is to sit down, run the numbers, and figure out the actual data.
How you determine the unarguable, real number that represents your monthly expenses varies greatly person to person. In a future post I’ll cover this process in a step-by-step guide and offer a free budget template to help you. You may already track your expenses and know exactly what your costs are each month. If you do, it’s a lot faster to calculate your reserve.
You know your monthly spend. Now what?
Let’s assume you have a handle on what it costs for you to live for one month in your current situation. Before you get distracted by how that number compares to your income, or lack thereof, take a look at the money you already have. How much liquid cash do you have? Liquid cash is money you can access quickly and without penalty (i.e., not retirement accounts). Come up with a firm, concrete piece of data for this.
The next part is easy. Divide your liquid cash by your monthly spend. The result is your reserve.
Here’s an example:
Let’s say you spend $2,000 each month and you have $4,000 in cash.
$4,000 ÷ $2,000 = 2.
You have a two month reserve. Makes sense, right?
Your reserve is the answer to one of the questions that could keep you stuck when you think about pursuing your passion: How long could you survive without income? Now instead of wondering, you can give yourself a real, true, numerical answer. The action you take to answer this question moves your forward, while just asking the question keeps you stuck.
Now you can use this data to decide the best time for you to pursue your passion, start your business, or even quit your day job. Knowing your reserve also makes it possible for you to make a data-driven decision about if you want to increase your reserve and if so, by how much? Do you see how much easier it’d be to pursue your passion with financial freedom when you are aware of your reserve and actively managing it?
Mind on your money and money on your mind.
The experience of getting more acquainted with your true financial standing makes it easier to manage your mind. No more guessing, no more speculating. Managing your mind also makes it easier to take a more active role in managing your finances, too. Figuring out all these numbers is way easier when you’re not in freak out mode.
When I start working with clients on money and mindset they experience less money-related stress, they use their clear head to make more informed decisions, and they come from a place of curiosity and compassion when managing their money. They end up creating more value, increasing their income, and often notice non-essential expenses decline.
Please know that financial freedom is possible no matter what your finances are right now. Feeling freedom around your finances is always available to you. You and you alone have the power to choose the thoughts that determine how you feel about your finances.
Data alone doesn’t carry meaning. Our interpretation of it does.
What should your reserve be?
Well, that’s entirely up to you. Some people call a 3-month reserve healthy and a 12-month reserve conservative. A 6-month reserve might sound like a nice middle ground to you. It all depends on your perspective. Many people will tell you, “don’t quit your day job.” But what about YOUR life vision? What would help you reach both your short and long term goals? How does this affect your ability to quit your day job as quickly as you would like?
The keys to your financial success are in your hands. If you’re ready to jumpstart your journey today contact me for one-on-one consulting. We’ll figure out the facts of your finances and fast track you to your goals.
Thinking of pursuing your passion but unsure how without risking financial insecurity? In my next post I’ll share the in’s and out’s of determining your monthly spend in a step-by-step guide along with a FREE budget template!