Money Honey – a book by Rachel Richards
Adulting is hard – that’s cliché but true. However, getting your financial $hit together can make it much less painful. This seems to be the rationale behind Rachel Richards’ decision to write “Money Honey”.
She seeks to help you make your adulting more tolerable by putting your finances in order.
You are acutely aware of the centrality of finances in your pursuit of happiness. The health of your parenting, career, romance, and everything else largely depends on your financial health.
This understanding is the reason you have been doing your best to improve your financial health. Unfortunately, things don’t work as smoothly as your parents and grandparents said it would even after following their advice to the letter.
So, where could the problem be?
Richards reckons the reason your by-the-book financial efforts aren’t working is that they are time-barred. What worked for the boomers and their children isn’t working now. So, she has written this book for millennial mums.
The author is impressively on top of her finances, and she started early, in case you are wondering. She paid off her college tuition with scholarships and in cash.
She retired at 27, having acquired 30 rental properties that gave her a cool $10,000 to live on at the time, and she is now able to focus on her writing career, speaking engagements, and growing her wealth.
Rachel saves at least half of her income, takes an annual vacation, and is virtually debt-free.
In short, what she prescribes in this book has worked for her.
In the book, she shares the seven steps to help you on the path to financial freedom.
Know your current story
The process of attaining financial freedom is a journey. You can’t map out your path effectively unless you know exactly where you are.
The book suggests you compile your financial details to get a clear picture. The following is a breakdown of what you need to establish in this step.
– Monthly expenses. You should obtain this information from a budget. Don’t worry if you hitherto haven’t been budgeting. There is a budgeting exercise in Chapter 2 of the book which should help you out.
– Net income. Note down all your income. Be careful to only include your income after tax; after all, that is the only money available for you to spend.
– Get the difference between your expenses and income. The author refers to this as the ‘golden number.’
– List your assets and liabilities.
– Get your net worth by deducting your liabilities from your assets.
– List all your debts and their interest rates.
– Write down what you have in your retirement account
The author seeks to make this process easier for you by providing a link to a spreadsheet you can use.
Brainstorm your financial goals
After establishing where you are, the next logical step is determining where you want to go. The author suggests that you write down your saving goals. She advises that your ultimate goal should be to fill up four’ buckets.’
– Bucket 1 is for emergencies,
– Bucket 2 is for at least four and a half months’ worth of living expenses,
– Bucket 3 is for major purchases you expect to make more than a year later and
– Bucket 4 is for retirement.
Your target for buckets 1-3 should be a specific dollar amount for each, while each check you receive should contribute a certain percentage for your retirement (Bucket 4).
Write down other financial goals you have besides the four buckets. Furthermore, these may include giving to charity or other social responsibilities.
Increase your ‘golden number’
The amount of money available to you to save determines how quickly you reach your financial goals. There are only two ways of increasing this important number, reducing expenses and increasing income. The author gives you ideas on how to do this in chapter two of the book.
Fill up your emergency savings (Bucket 1)
You shouldn’t begin to save in any other bucket until you have put aside $1000 for emergencies. This means you should divert all your disposable income towards this so that you fill the bucket as quickly as possible.
Decide the lowest amount to contribute for retirement (Bucket 4)
The book advises you to contribute to your retirement without fail, regardless of circumstances. Set your contribution to take full advantage of your employer’s matching contribution if you have any such arrangement.
Prioritize your Goals and Achieve Them
You now have an emergency fund and a set contribution towards your retirement. These two decisions set you free to focus on other financial goals. The ultimate goal is to increase your net worth by reducing the money leaving you and increasing the money coming to you.
One way of achieving this goal is by focusing on the high-interest areas and spending on them first. The strategy of using interest to determine what to do first applies whether you want to acquire an asset or to pay off a debt.
If, for example, you have a loan that has a 10% interest rate p.a. and the opportunity to buy a property appreciating by 20% p.a., buy the property first.
The property will increase in value, and when you eventually pay up the loan at 10% interest, you will still have a net gain of 10% from the property’s appreciation. If the loan has a higher interest, pay it off first.
Do an Annual Review
Review your financial status annually. The annual review allows you to find ways to increase your golden number. You should also ensure you still have your entire emergency fund- refill it if you have spent it. The author suggests that you update your balance sheet monthly.
Updating the balance sheet every month is a great way to keep you motivated.
The interval between reviews is not cast in stone; it doesn’t always have to be annual. You can review your progress twice a year if you adjudge your progress to be fast.
This book is very practical. The steps outlined in it can help you achieve financial freedom. However, one overarching principle on which everything in the book hinges is this: live within your means. It is the only way you can even begin following the steps outlined by the author.