Earning money
Are your earnings adequate to your competences? Many clients who use my career coaching services only when they start looking for a new job find out that their salaries have actually been lower than the current market rates, and that they have been lower for quite some time. Employers rarely raise salaries on their own, unless we have explicitly asked them for a raise.... Are you able to negotiate a higher rate if your work actually became worth more? It is natural that payroll reports or statistics will not tell us exactly how much we should earn; our earnings are not only the derivative of our knowledge and skills but also of our work attitude and effectiveness, our personality, ability to show what we bring to the table during the recruitment process, or the situation on the local job market. To some degree they also depend on our luck.
Spending money
Do you spend money sensibly, in a manner that is adequate to your financial situation? Or maybe you are living beyond your means or spending all your salary and living in constant fear? Some of my financial coaching clients find it extremely difficult to maintain discipline and refrain themselves from compulsive buying or from buying things that they don’t really need, that they simply bought on a whim, at the spur of the moment, rather than think whether or not the purchase was reasonable. Many people are more susceptible to the “Buy it. You deserve it!” slogans, and then find out that they spent much more than they had intended in the first place. With each purchase, you have less money on other expenses or less money to put aside or invest.
Even if you have an excellent salary and you don’t think you need to curb your spending, it is a good idea to learn how to manage your money wisely and make purchase decisions. It is also a good idea to teach that skill to your kids because it is indispensable for balancing your financial life and avoiding a lot of stress, even getting into debt.
Investing
A lot of people think that they don’t earn enough to invest. Admittedly, you cannot buy an apartment to rent, a gold bar or a large block of shares if you have scant financial resources. However, investing is also about spending money to get competences that will help you earn more, to buy equipment that will make your job easier or to make decisions on how to best invest the funds you have, no matter how modest the sums involved. Of course, spending too much money on investments while neglecting important needs of your own or of your loved ones can also be a trap. As always, moderation and common sense is a must.
Saving
Contrary to appearances, how much you have in savings does not depend on your earnings only, although it is obviously much easier to put money aside when you earn 20,000 zlotys a month than when you earn only 3,000 zlotys a month. However, there have been plenty of people, such as some movie stars or celebrities, who have been raking in big money for decades only to whine in the media that they have nothing to support themselves. It is true that saving will come naturally to some people and others will simply have to learn it, even on their own or with the help of a specialist – it all comes down our psychological financial identity profile, our habits, beliefs and values. You can notice even with young children that some of them know how to put money aside and keep it, while others splurge right away... What about you? Do you know how to save? Or maybe the more you earn, the more you spend and you always find yourself in distress at the end of the month when the money is tight? Or maybe you have failed to build a cash cushion even though you make good money?
Lending money
Hundreds of thousands of Poles have fallen into debt by taking out loans from banks, shadow banking institutions or family. Many people live from paycheck to paycheck, or rather from debit to debit. Banks use all tricks to encourage us to take on debt, many stores, particularly those selling white and brown goods, invite us to buy their goods and use a 0% interest installment payment plan. Is it easy to induce you to spend more than you earn? Do you fall for advertising and buy things on credit? Or, maybe you are one of those people who avoid taking out a loan at all cost, even if it is necessary to improve your quality of life (e.g. to buy a bigger apartment) or grow your business (e.g. an investment facility)?
Risk management
Life is full of risks and many potential threats are completely beyond our control. However, there are some risks that are under our control to some extent, for example when we exceed the speed limit significantly while driving. There are risks that we can foresee, at least to some extent, and account for them while making a decision (for example, the currency risk when we take out a currency loan). You cannot prevent all unwanted situations. However, in some situations you can protect yourself against a risk by purchasing the right life-or property insurance, or simply by avoiding certain situations, for example, you do not build a house near a river. And how do you manage risk in your personal- and professional life? Do you analyse the inherent risk when making important financial decisions, e.g. to take out a housing loan, to set up your own business or guarantee someone’s loan? Do you examine whether or not there is any way to mitigate that risk or at least minimise the fallout for you and your loved ones?
Pension plan
You don’t need to be an expert on pension system to know that if you want to be financially independent in old age, you cannot rely on what you have put aside from your mandatory contributions to the Social Insurance Institution... Only a small percentage of Poles have so much money that they can set money aside for their retirement without sacrificing their quality of life. Most of us have to give up on some purchases we want to make now if we want to build a cash cushion or save for our retirement. However, experts emphasise that when you are saving for retirement it is extremely important to build a habit of putting money aside on a regular basis – you can save even small amounts of money but you need to do it consistently for years. What is your vision for life when you are no longer able to work? Do you ever think how you will support yourself when you retire? Even if you have 20 or 30 years ahead of you before you retire, it is a good idea to start thinking about it now. Passive income is one way to make money even when you no longer work.
Tax planning
You probably won’t find many people who like to give the government more money than absolutely necessary... It is therefore a good idea to consult a tax professional who will help you find the best ways for you to improve your tax situation. It is extremely important for everyone, not only when you are self-employed. A good tax adviser is really worth more than their weight in gold... We can save substantial amounts of money with the right tax optimisation strategy. Following the implementation of the Polish Deal, tax advisory firms are even more in demand than before. So, it is better to schedule your appointment with an experienced tax professional well in advance.
Passing wealth
or what happens to your assets when you die. This is an area that spurs most family conflicts. It leads to infighting and mutual accusations. It can even tear a family apart or lead to a years-long court battle. In addition, estate law regulations can be quite complicated, particularly when there are many heirs and they don’t seem to agree on how to divide the estate up. It is only natural that legal regulations frequently do not account for the specific circumstances of a given family, for example, the fact that one child spent more time or money caring for an aging parent than the other children; however, he or she will not get more under statutory inheritance rules, even though he or she incurred more costs. If you want to spare your loved ones the infighting and frustration, you’d better take the time to consult an estate lawyer and make a will, even if you still expect many years to live, statistically speaking.
Reflect on how you are doing in each of those nine areas of finance management. In which area do you excel? Which one do you neglect? Which areas generate most problems for you? Why is that? What actions can you take to improve gradually your situation in each of those areas? As a financial coach, I work with my clients to address those issues and many more.
