The 3 Basic Truths of Safe Money Management

Sep 23, 2021

Always wondering if you are making good financial decisions. Want to get a handle on your finances? Do you wish you could feel secure about how much money you’ve saved? The Success Matrix is a unique calculator that shows your entire financial picture on one page.  Its effect is transformational.

I created the Success Matrix to teach women who had never handled money before to grow and prosper.  Now I work with men and women, experienced money managers and novices alike.  I want my clients to understand 3 essential truths.  And you need to know them as well.  Here they are:

  1. You will never be financially stable until you are spending less than you make. Using the Success Matrix makes that abundantly clear. You can see how much money is left after your expenses (Cash Flow).  I can’t say how important it is to know if you are positive or negative on this number.  If you are negative, you are either spending down your savings or adding to your debt.  Never a good idea.  And if you are in a positive Cash Flow, you have some happy decisions to make. Do you want to spend it, save it or pay down some debt?  But first, you have to know what your Cash Flow is.
  2. You can do only two things with your money: Spend it or save it. That’s it.  Keeping that in mind when money flows into your life will simplify some of your decisions.  As a general rule of thumb, saving 20% of your income is a good starting place.  If you want to save more, you’ll need to spend less.  (I know, duh.  Right?)  But we are covering the basics here.  And if you want to spend less,   you need to know where you spend money now.  The SM will calculate your spending in four categories: essential expenses, lifestyle expenses, taxes, and debt.
    • Essential expenses include all food, housing, transportation, insurance premiums, and health care costs. Knowing this number will help you be clear about your hurdle in difficult times.  These are the basic needs that will need to be covered by your disability claim or your emergency savings in bad times.  It is the number you will multiply to determine the amount needed in your Emergency Fund.  And it will help you plan for the future when the income stops.  You can investigate further if you are overpaying for any of your essential items.  Reducing this number will go a long way in making you financially secure.
    • Lifestyle spending is any spending not essential to your survival. It would be best if you grasped that Non-Essential equals luxury.  This understanding will also help you make choices based on your value system and your goals.
    • Many people forget to include their tax bills when looking at their expenses—a bad idea.  If you know how much flows out for taxes and understand your effective tax rate, you can make much better decisions on your employee benefits.  (More on this in a later article.)
    • Debt payments are a critical part of the calculation. Debt not only lowers your Net Worth (Net Worth = Assets – Liabilities), it requires payments, which lowers your cash flow.

Again, everything left after spending is what you can save.  If you need to save more, then…you know what you have to do:  Earn More or Spend less.

  1. Net Worth is the key to Financial Independence. At some point, you will want to quit your job.  Maybe sooner rather than later.  At that time, you’ll begin spending your assets to replace your income.)  Watching your cash flow is the first step.  I encourage my clients to take a regular snapshot of their net worth. (At least annually).  Print it, compare it with last year.  Seeing your progress is so encouraging!  Other ways knowing your Net Worth helps you:
    • Watching Net Worth will guide you about taking on new debt. All debt reduces both your Net Worth and your Cash Flow.  Using the SM will help you see this so much more clearly.
    • Watching your Net Worth will also let you know when and how you can retire. When the value of your financial assets minus any debts is enough to produce the income, you want to live on—boom!  You are good to go.  Generally speaking, 4% is a safe withdrawal rate if you want your money to last 30 years or so.  ($1,000,000 will allow a safe withdrawal rate of about $40,000 per year for a normal length retirement. )

Using the Success Matrix will clarify, focus and expedite your financial progress!  I teach my clients to establish a habit of regular Money Meetings using the Success Matrix.  Step by step, you will be guided to enter your income(s), expenses, assets, and liabilities. Knowing these numbers…. YOUR numbers…will answer every financial question you have.