Knowing your numbers is wildly important. By knowing our numbers, I mean mapping out how much you should be earning and spending to live your life, save some money and reach some goals. If you're just starting to get your financial shit together, first of all congratufuckinglations! I'm proud of you and I'm happy for you. It's not easy and you should always celebrate small victories (after all, I am a millennial).
If you haven't taken the leap yet - if you don't know your personal economics, you are totally and completely flying blind and that shit is unsustainable. Trust me. It will catch up with you. I've seen people who have insane earning power, but because they don't know their numbers, they've totally fucked themselves (mostly with taxes, overconfidence that lead to overspending and forgetting about our favorite pal, savings). If you're in that camp, don't worry, you can un-fuck your finances. Remember, it's a process.
So back to why I think it's so damn important to know your numbers - because it gives you confidence. And confidence is sexy, especially confidence surround that cash money. It also gives you a sense of control, which is usually a better feeling than being totally out of control. And knowledge helps fuel change.
Knowledge = Confidence
A huge part of feeling confident about your finances is your knowledge surrounding it. Think about your industry and your career. When you first started, you didn't have the information and tools that you have now. Wasn't it was pretty daunting place to be? Your confidence was not where it is after years experience, snowballing into your knowledge arsenal. Same thing with personal (and business) economics. It's easy to lack confidence and fall into fear when you lack the knowledge.
Knowledge = A Sense of Control (Power!)
Mostly everything in our lives are outside of our control and we live with the illusion that we have control. Finance is a bit like that too. We control what we can - like doing our damned best to figure out ways to make sure we are earning enough, making sales and marketing to an audience that can actually afford our product or service. And to a large extent, we also have control on how to choose to spend our money and what we choose to spend it on.
You can create a sense of control over your finances by knowing how each dollar coming in or out directly impacts your life. And if you want to get hella geeky and go beyond personal economics, learning about the bigger picture of economics, it's cycles, ebbs and flows, that can help guide you when you need to make decisions that rely on interest rates (like borrowing money to buy a car) or the price of big ticket items (like buying a house). You get a sense of control in those aspects because you have an understanding of how things work and impact one another.
Knowledge = Change
The most practical benefit of knowing your numbers is the ability to use that information to change your behavior. Changing your behavior could simply be put more into your savings or allowing yourself to spend more on something that is good for your mental, physical or spiritual health. Change could also be deciding to give more away for charity or if you're really lucky, working less to focus more on what matters.
One change that is hugely important is reframing your mindset and attitude. Taking a look at your numbers may allow you a moment to be grateful for all the awesome shit you can afford to do in your life. And instead of feeling like you're restricting your spending, change the story you tell yourself - you are simply pouring more resources into what it is you truly value. If you pay a lot in rent, is it because you value the city you live, the neighborhood, the climate, the lifestyle it allows you or the amount of space you have? Maybe you don't value those things and looking at your numbers will help you make the change.
Alright, next week we'll talk about how to start thinking about your expenses in different categories so you don't feel overwhelmed and wanna barf every time you attempt to map out your finances.