Optimizers

As we move into the area of optimizers, let’s take a moment to notice some of the similarities and differences between money and time.

As we’ve said before, time and money are both resources. They are both languages of value. They are highly interrelated, and the way we spend both communicates what’s important in our lives.

Also, both have an enormous potential for strengthening relationships. The way you interact with others around time and money issues can make huge deposits or withdrawals in relationships, as well as in bank accounts.

In addition, they both provide wonderful opportunities for self- discovery. The more you learn about the way you spend and invest both time and money, the more you learn about yourself. The more you consciously choose to make better spending and investing decisions, the more you grow in strength of character and develop the capacity to exercise better judgment and more discipline in every area of your life.

But while time and money are both resources, there are differences in the way we can allocate each.

First, when you deal with time, it’s like trying to navigate a kayak through the rapids. You’re in the flow. Obviously, you need to chart your course. But you have to be able to respond in the moment. When you deal with money, however, you’re not in the flow. You may feel like you’re in the flow with all the pressure to spend; but the reality is that, while time moves independently, money doesn’t move until you move it. So you’re on land. And—like a farmer needing to get irrigation water to the end of the row—your job is to channel the flow where it will produce the greatest growth.

Second, while many time decisions have to be made on the spot, most money decisions can be made in advance. You can’t “save” or store time. You can only spend it in the moment. But you can save and store money, and doing so generally causes it to increase in value. Your ability to save and spend money in advance can actually make handling money easier than handling time because it gives you greater control.

With these similarities and differences—and our Quadrant II paradigm—in mind, let’s look now at high leverage optimizers in the area of money management.

Optimizer 1: Know Where Your Money Is Going

As we mentioned earlier, people who are good with money know where their money goes. So the first optimizer we suggest is to track where you’re currently spending your money. Just like tracking your time, this will put the reality and consequences of your choices right in front of you.

Logically, it might seem more effective to start by setting your financial goals first. But experience shows that most people have at least a few subconscious values around money, and simply tracking where it’s going tends to bring them immediately face-to-face with discrepancies. Even without a clear vision of your financial goals, your navigational intelligence—somewhat calibrated by these sub- conscious values—will immediately begin to pick up on areas of misalignment and waste.

For example, one financial counselor told us of a man—a truck driver—who was concerned about his ability to provide for his young daughter’s future college education. Even though he didn’t have his financial goals all figured out, the counselor suggested that he start tracking where he was spending his money. He was surprised to discover that he was spending $80 a month on Big Chills. (extra- large convenience store drinks) When this counselor showed him how that $80 a month properly invested over time could pay for his daughter’s education, he was moved to tears.

Because it’s such a powerful revelatory tool, if you’re not already doing it, we suggest you begin tracking immediately. Here are some ways you could do it:

• Turn into a “receipt hog.” Get receipts for every transaction and take a few minutes at the end of the day (or the end of the week) to record them.

• Pay for things with a check card and access online banking or get a summary statement from your bank.

• Carry a three-by-five card or use a planner page to note your expenses, or write checks and record them in a register.

However you choose to do it, record your expenses, and at some point sit down and analyze where your money is going. It’s likely that you’ll immediately spot places where your money is disappearing in Quadrant III and IV black holes—money you could be investing and growing in Quadrant II. Many financial software programs, such as Microsoft Money and Quicken, and online services such as themoneyplanner.com make categorization easy and enable you to quickly recall and organize information—even providing summary graphs and charts—for effective review.

Optimizer 2: Know Where You Want Your Money to Go

A second high leverage optimizer is to create a clear and, if appropriate, shared vision of where you want your money to go. The lack of this kind of vision is at the root of much of the stress we feel about money and work, and also at the root of much of our impulse buying. It’s also at the root of much of the financial distress in marriages and families. When family members—particularly spouses—don’t take the time to work through their differences to come up with a solid, unified financial vision and strategy, spending decisions often become shocking, divisive, and a source of hidden pain, creating withdrawals from far more than bank accounts.

In order to clarify your financial values and goals, it can be helpful to make a list of possibilities, which might include some of the following:

• Become debt free

• Buy or pay off a home

• Establish an emergency fund (three to six months of living expenses)

• Pay off education loans

• Reduce financial stress

• Establish a fund to care for aging parents

• Have money put away for a well-funded retirement

• Gain control of finances

• Reduce taxes

• Own a business

• Fund a humanitarian project or consistently donate to a charitable cause

• Remodel the house

• Have money for a dream vacation

• Establish a fund for children’s weddings

• Own a better car free and clear

• Be able to fund private schooling and/or college education for the children

• Help children with down payments for first homes

• Own a farm, mountain cabin, or vacation retreat

• Own a motor home or boat

• Build a swimming pool or spa

• Save money for the birth of a new baby

• Invest in rental property

• Increase your current standard of living

When you have all the possibilities out on the table, identify your top five and prioritize them according to importance. Then focus on the five. Keep them constantly in front of you. When you’re tempted to waste money in Quadrants III and IV, remember your important Quadrant II goals. Look for ways you can grow your money and put them into action.

This kind of activity can be turned into a fun and instructive game for couples, single parents who want to involve older children in financial decision making, or anyone in a situation of shared financial responsibility. The following version of this game was adapted from one created by our friends at themoneyplanner.com.

The Money Game

1. Transfer the list of possible financial goals to 5 three-by- five cards, putting one goal on a card. Make enough duplicates for each person to have a full set of cards.

2. Set a timer. Without consultation, allow two minutes for each person to select the five cards out of the set that represent his or her top five financial goals.

3. Set the timer again. Allow one more minute to order the five cards in terms of priority.

4. Compare the sets of cards. How unified are you on your financial goals and priorities?

When you play this game with others, you may well discover that you’re operating out of completely different expectations. And this unrecognized difference is often a source of a lot of tension and stress.

Continuing exploration may reveal other expectation differences as well. In many marriages, for example, there’s a sort of loose assumption, on the part of one spouse or the other, that both should agree on spending. But when that spouse discovers the other has gone out and bought something without talking it over, it creates frustration and disappointment. That action comes across in one of two ways: either as saying, “What I wanted to spend that money for was more important than my commitment to you,” or as a rude reminder that vision and values are not shared. Either message can create pain and distress.

So it becomes very high leverage to create—either on your own or with others with whom you have shared financial responsibility— a financial mission/strategy statement. Realistically, this may take a significant investment of time and effort. Marriage partners may need to face and resolve issues around different scripting, paradigms, and habits. Likely, children will initially see finances essentially through the limited view of their own immediate needs.

But keep in mind that this is a high leverage Quadrant II investment of time. It will facilitate high leverage Quadrant II investments of money. It will also facilitate Quadrant II relationship building. And the shared understanding you create will enable you to help family members align their expectations with what is both “real” and “realistic,” eliminating many disappointments and arguments and enhancing the quality of all future interactions around finance.

In creating a financial mission/strategy statement, you would first want to identify your goals, the resources you need to accomplish those goals, and the principles, values, and guidelines that would govern the acquisition and management of those resources. You might address questions such as the following, or others more appropriate to your situation:

• What principles will serve as guidelines for our economic decisions and actions?

• What degree of financial security do we want to achieve and how are we going to achieve it?

• What lifestyle parameters do we want to set?

• What should we set aside for future needs, such as retirement, children’s education, and caring for aging parents?

• What roles (“provider,” “financial manager,” etc.) will each of us fulfill?

• What is our strategy to coordinate and account for our spending?

• What are our commitments to each other?

The strategy part of the statement would include your long- and short-range goals and the ways you plan to fulfill them. You can use your navigational intelligence to help you discern the financial goals and strategies that are best for you.

Below is a sample financial mission/strategy statement for a young couple—whom we’ll call Tom and Laura—with two children:

Principles	Goals	Financial Strategies	Integrated Life Strategies	Roles
Live within our means Set some aside for a “rainy day” Earn interest rather than pay it	Generate enough income to cover basic living expenses and savings goals Pay off school loans (three years) Own our own home (15 years) Have $50,000 in college funds for Janie and Tyler (15 years) Have $2 million in retirement funds (40 years)	Invest 5 percent of income in emergency savings Invest 5 percent of income in college accounts Invest as much as possible in company 401(k) Manage rental property (inherited from parents); invest profit in annuities Stay with current job; advance Refinance home on a 15-year mortgage while rates are low Do not go into consumer debt Do not purchase a car that is less than one year old Have weekly meetings to track expenses and set budget goals	Live on one full income and rental property income until Janie and Tyler are in school Stay in current home unless income becomes sufficient to handle higher payment on current percentage level	Tom: Provide primary income Manage investments Balance bank and credit card statements Laura: Propose monthly budget Pay bills Manage rental property for five years Provide secondary income when Janie and Tyler are in school.

Developing a statement such as this can provide high leverage optimization not only in your family, but also at work—or in any circumstance where financial responsibilities are involved.

Particularly when there is a shared financial responsibility— people find it strategically wise to invest some Quadrant II time in coming to a clear agreement. Clear, shared vision makes the whole process of money management much easier.

Optimizer 3: Plan Weekly

During the earlier years of our married life, we thought it would be a good idea to meet together weekly to discuss issues around being partners and parents in our home. One of these issues was finance.

Often, we did meet weekly. But financial matters were somewhat low on the list. It seemed there were always so many other things to talk about, so we frequently gave finance a halfhearted gloss-over and moved on to other things. As a result, we didn’t have as clear and unified a vision as we should have had, and we were not always unified in our spending decisions.

Because we have one of those absolutely incredible, once-in-a- millennium love affairs and so many deeply shared values, our differences over finances didn’t ruin our relationship. But they did cause moments of grief and pain, and they certainly didn’t add value to what we had.

It wasn’t until our financial disaster that we learned the value of addressing money matters every week. On one of our retreats together, we created a shared financial vision that was truly meaningful. In it, we identified the principles of effective financial management. We agreed on priorities and goals. We committed ourselves to integrity in execution.

Then, in our weekly meetings, we began to:

• Review our financial mission/strategy statement

• Track our expenses from the past week

• Compare actual spending to our spending goals (budget)

• Celebrate victories of the past week—no matter how small

• Discuss what we’d learned and ways to improve

• Plan spending and investment for the coming week and make necessary budget adjustments

As a result, the differences in our values and approaches began to slowly disappear and we gradually became more unified.We knew we were doing better when, after several months of weekly meetings, we came across The Money Game for the first time. When we compared our cards at the end, they were identical! Not only had we chosen the same goals, we’d put them in exactly the same order. (And incidentally, we finished ahead of time!) All the effort we had invested to hammer out the issues had obviously paid off.

We recognize, of course, that individuals, couples, and families handle their finances in many different ways. Some set up separate bank accounts. Some use separate credit cards. Some divide the roles up differently.

But however you choose to handle your finances, we recommend a weekly—or even biweekly or monthly—financial meeting as a high leverage way to ensure that you stay connected and focused on what’s important. You could even include it as part of an expanded planning session and consider your investments of time and money at the same time. With both resources, constantly renewing your vision and values helps ensure that what feels urgent or appealing in the short run does not short-circuit what matters in the long run.

Optimizer 4: Increase Your Financial Intelligence

In the words of Robert Kiyosaki, more money seldom solves someone’s money problems. Intelligence solves problems. There is a saying a friend of mine says over and over to people in debt: if you find you have dug yourself into a hole . . . stop digging.^[10]

According to a recent “financial literacy survey” conducted by Roper ASW, “America isn’t flunking financial literacy, but it’s close. With a grade of 67 out of 100, Americans get a ‘D’ in the subject.”^[11]

So what can we do to increase financial intelligence?

In addition to investing money in Quadrant II, invest some time. Read a book. Attend a seminar. Watch a PBS special on finance. Find out more about effective debt elimination, investments, money markets, annuities, CDs, and 401(k)s. Talk with people who are good at managing their money. Find ways to consciously invest in increasing your financial intelligence. If you’re married, do it together. Learn together, talk together, improve together. Make it a date.

One of the great benefits of weekly financial meetings is that they also increase your financial intelligence. Week after week, as you account for, evaluate, and learn from your experience, you get better. You see where your money’s going. You compare it to where you want it to go. You start moving out of Quadrants III and IV and investing in Quadrant II. You learn how to “set your standard of living lower than your level of income, even though many of your neighbors and friends set their standard of living at the limit of their credit-worthiness.”^[12] As you consistently pit performance against principle, you grow in financial intelligence and gradually reduce the distance between the two.

Your financial intelligence is part of your navigational intelligence. The more keenly you calibrate it, the better decisions you’re going to make. Even when it’s on automatic scan, as you go through the day it will help you avoid traps such as impulse buying, and to stay on your predetermined path of financial security and strength.

Optimizer 5: Build Margin

Margin is space between resources and immediate needs. If you’re living from paycheck to paycheck, you have no margin. If you have $1,000 in a savings account, you have a little margin. If you have six months’ worth of income in a money market account, a good supply of canned foods in your basement, and retirement funds in place, you have a lot of margin.

In this day and age, we’re beginning to understand more about the importance of margin. With economic uncertainties, downsizing, and layoffs, job security has become a serious concern. With the possibility of natural disasters or terrorist threats in a time when grocery stores are no longer supplied by neighborhood or small regional warehouses but by mega-warehouses typically long distances from the stores, the vulnerability of our food supplies has also become a concern.

To create margin can provide considerable comfort in these troubled times. And it brings other benefits as well. Money in the bank can be earning interest. Bulk-quantity shopping can save money. And margin can give you the freedom to do the important things you need to do.

Consider two fathers. The first puts “family” at the top of his list of priorities. A few years ago his teenage son was having problems, struggling with some important decisions in his life. If there was ever a time he needed guidance and help, this was it.

In his heart, this man knew he needed to spend some quality time with the boy. Because he had margin—not only in his financial affairs, but also in his relationships at work—he was able to arrange to get away for several days He packed up his Jeep, and he and his boy headed for the mountains. The setting was beautiful. They walked and fished and slept out under the stars. After a time, the boy began to talk, sharing his deep concerns with his dad. It was a time of close communication and bonding, of making deep inner connections and good decisions that would impact the rest of a young life. In the process, this man gained tremendous insight into the nature of the challenges his son was facing. He discovered things he could do and changes he could make to better help his boy.

If this man had not had the margin to adjust and meet this critical need in his son’s life, those important decisions would have been made under very different circumstances and could well have taken a much different turn.

We contrast this father’s situation to that of another father who also puts high priority on his family. He earnestly wants to be there for his children when they need him. But he’s holding down two jobs to pay off his debts. He hardly sees his family. Taking time off from work to spend with his son would be out of the realm of possibility.

Your ability to create margin in your life generally has a huge impact on the degree of freedom you have to manage your time and seize opportunity. The more you free yourself from debt and high consumption, credit and impulse spending, and the more you build your resources—not only in terms of money, but also in terms of employability and high trust relationships—the greater freedom you will have to do what’s really important—both now and in the future.

Optimizer 6: Develop an Effective Financial System

In the previous chapter, “Time Matters,” we discussed the importance of having quality, aligned personal leadership systems, including a system for finance. Such a system would ideally enable you to:

• Know what resources you have (e.g., money in the bank)

• Know what’s committed (e.g., payments)

• Spend (e.g., write checks, make electronic payments)

• Track and evaluate spending (i.e., record receipts, summarize spending patterns)

• Plan (i.e., forecast, create budgets)

• Remind you of your purposes and goals

As we’ve said, you already have some kind of system currently in place that, to one degree or another, performs at least some of these functions. So look at your current system. How effective is it? Does it meet the above criteria? Does it help you set and achieve meaningful financial goals? Does it provide the information you need?

Consider this: Are you ever surprised by what’s on your bank or credit card statement? If someone were to ask you right now how much you have in your checking account, what the outstanding balance is on your credit card(s), the amount of your monthly expenses, or what your net worth is . . . could you answer?

You might want to review your current system by using a checklist such as the following:

1. What are the components of your current finance system?

   q A clear statement of financial strategy and goals

   q An online or computer-based finance program

   q A PDA

   q A checkbook

   q A bank card

   q One or more savings accounts

   q One or more checking accounts

   q One or more credit card accounts

   q Personal record-keeping help (e.g., assistant/secretary)

   q Online banking

   q Automatic bill pay

   q An investment counselor

   q Other (what?)

   ________________________________________________________

   ________________________________________________________

   ________________________________________________________

2. How well does your current system meet your general needs?

   q Is it effective? Does it help you do what’s most important?

   q Is it efficient? Does it do it in the best possible way?

   q Is it simple? Is it streamlined, easy to work with, free of complicating “bells and whistles”?

   q It is synchronous? Does it work in cooperation with your other tools and systems?

3. What are the distinguishing characteristics of the tools in your systems?

   q Paper-based

   q PC-based

   q Handless

   q Wireless

   q Web-based

   q Pen-based

   Do these characteristics work well in your situation?

4. What are your specific needs?

   ________________________________________________________

   ________________________________________________________

   ________________________________________________________

   ________________________________________________________

   ________________________________________________________

   ________________________________________________________

   How well does your system meet those needs?

5. What could you do to augment, improve, or replace elements of your current system to create greater alignment?

   If you determine that your current system is not meeting your needs, explore the alternatives. In today’s competitive market, financial institutions are investing a lot of time and money in creating user-friendly system components, including:

   • Online banking

   • Online bill pay

   • Telephone access to account balances and transfers

   • Credit card statement options, including categorization for business and other expenses

   • Credit report access and monitoring

   • Credit card aggregation, where all your accounts and transactions are listed in one place on the Web

There are even Web sites designed to educate consumers on the different options and compare product and service providers.^[13]

If you decide to improve your financial system, the first step is to be clear about exactly what you want your system to do. Then contact your current financial institution. See what products and services they offer. Keep abreast of new changes and developments.

If you’re not satisfied, check out the competition. Check the Internet. Identify options that could meet your needs. Then do a cost/benefit analysis. Ask yourself:

• Is this option more effective? Will it help me do what’s most important better than my current system?

• Is it more efficient? Will it help me do what’s most important in a way that is better than my current system?)

• Is it more simple? Is it more streamlined, easier to work with, freer of complicating “bells and whistles”?

• Is it more synchronous? Does it work better in cooperation with and better help facilitate my other systems?)

• Does it better meet specific needs? Which needs? And how important are those needs?

Considering these questions will help you determine which options will work for you.

ROGER

We keep most of our financial records on Rebecca’s desktop computer. We’re currently using a computer software program to track and plan, and an online program to pay our bills. We also use separate credit cards for home and business expenses, which we pay off monthly to avoid interest.

When I’m not at home, I can access our records through the Internet. With my Tablet Planner or Pocket PC, I can check balances, record expenses, and transfer funds.

This system allows us to coordinate our spending and fulfill our roles wherever we are.

As we consider financial systems, we sometimes think it might be a lot easier if we could all just do all our business in cash, or even barter: “You give me so much of your product, I’ll give you so much of mine, and we’ll both be happy.”

But the reality is that we live in a high-tech financial world, and computers are fast becoming the almost exclusive mode of financial transaction. In fact, at a recent seminar in Stockholm, Sweden, when the word “checks” came up, participants laughed. They said, “We don’t even use checks anymore!”

So we encourage you to give serious thought to your financial system. Evaluate it. Investigate options. Make sure you have the system that will work best for you.

This is a high leverage Quadrant II activity. As you do it, you will not only enhance your own financial management effectiveness, but also expand your awareness and increase your ability to navigate in systems at work and in other interdependent situations.

^[10]Kiyosaki, Robert T. Rich Dad, Poor Dad. Warner Books, New York, 1997, p. 69.

^[11]“Financial Literacy in America,” posted on www.bankrate.com, March 16, 2003.

^[12]Harris, Blaine, and Coonradt, Charles. The Four Laws of Debt Free Prosperity. Chequemate International, Bountiful, UT, 1996, 2001, p. 59.

^[13]www.bankrate.com; www.cardweb.com; www.fool.com; www.creditcardsusa.com.