Face The Man In The Mirror

Sam operates a taxi in the CBD.  One morning he receives a call from Tom, a potential client that needs to be picked up and taken to the airport.  Tom however cannot actually describe his pick up destination. He is obviously very unfamiliar with his current location.  He tells Sam the apartment block he is staying at is somewhere near the big shopping centre.  He is not sure about the name of the road and the proximity to this nameless shopping centre, which only serves to make his attempt at directions even more futile. Shortly after speaking to Tom, he gets another call from Ann.

Ann also needs to go to the airport to catch the same flight but the difference is she does know exactly where she is.  She wants to be picked up from her home so she is extremely familiar with it.  She knows all the landmarks and explains them in detail to Sam. She even tells him what alternative routes to use in case of traffic. Who would you go pick up if you were Sam?  Chances of success are much higher with Ann.  Sam will be able to find the place, deliver his client in time for the flight, and make better use of his time because he would not be driving in circles with minimal instruction. Sam knows he will not be able to get his client to where they want to go if they don’t already know where they are coming from.

This week in our first Centonomy class of the new season, we had a session dubbed “Facing the man in the mirror” and it was all about understanding where we are today. We all want to get somewhere financially.  But how can we give ourselves directions if we do not know where we are coming from?  Many of us tend to be like Tom.  We have faint idea of what is going on with our money but not the whole picture. Just like Tom risks missing his flight, I think we risk missing flights to various financial destinations or access to people who can help us get there (like Sam) because we simply don’t know where we are. It is like going for a meeting without any idea of your name or the business you represent.

Yes, you may have goals.  Some of us even deceive ourselves that we can achieve these goals by magic.  We think we don’t have to deal with what is in front of us but in some way we will achieve our objectives.  In some way, an unspecified deal will fall on our laps and solve our problems.  These deals are by far the exception and not the rule. So I suggest before you map out your great ten-year plan or come up with even more resolutions, firstly just do some simple things to understand which neighbourhood you are in.  There are two basic steps to facing the man in the mirror.  The first step is evaluating how much money is coming in and how much money is going out. Ignorance may be bliss but it certainly didn’t help Tom catch his flight. Someone once told me they know how much money goes out because it is equivalent to their salary.

This is still ignorance.  Where is the money going is what you need to ask yourself?  You need to know the specifics so you can make choices?  You can decide to spend less and to do that you need to know what you are cutting down on.  For example you can make a decision to reduce your entertainment spending by five thousand shillings. People do spend more than their salaries through credit cards, loans, advances, friends etc. Many are not aware that they are doing that until they write it down.  The second step is understanding what your financial position is.  This has nothing to do with how much money you make or what goes in and out.  Rather it is about what you have to show for it.

It actually displays what the financial decisions you have made (good and bad) have resulted in.   Think about it as an analysis of what you own (assets) and what you owe (liabilities).  So you have been working all these years?  Ideally you should have some form of investments such as shares, pension, property, savings accounts etc.  What those are worth is what you need to take stock of. What do you owe?  If you paid of all your debts today, what would the amounts be and to whom? Your personal car, jewelry, electronics, furniture do not feature here because they are not financial assets.  They depreciate everyday and you bought them for personal use and not investment.

These two exercises tell the tale of your finances.  You may feel scared doing this. Awareness and exposure even to yourself is always scary but you just need to do it. Remember it only gives the history if your past but has no bearing on what the future could be if you make different choices.  So how does this take you closer to the airport?  You know where you are so you can map out a route.  If you know what the value of your shares are and how they have performed, you can decide to be more consistent as a path to funding university education for your child.

Acknowledging the level of debt you have will give the decision to cut entertainment expenses more meaning.  You will now view it as a route to get out of debt faster. Remembering you have land will open your eyes to how you can start using this land in a more productive way.  Like Anne, who knew alternative routes to her home you will be able to recognise what needs to be shifted around to make things work in your favour.  Maybe your money could be allocated to places that will ensure it works harder for you. Don’t miss your flight. Make your current financial situation as familiar as home. Face the man in the mirror.