Becoming a Financial Late Bloomer - Phase 1: Gain Full Clarity

Jan. 27

In my last post, Are You a Financial Late Bloomer?, I defined the term financial late bloomer as someone who actively started managing their money and building wealth later in life.

I’ll admit it's a bit of a ho hum definition but I do think it captures the “bloom” part of being a financial late bloomer - to be a late bloomer you need to start actively managing your money and building wealth.

Over the next series of posts, I’m going to focus on this shift to action. I will describe some tangible steps that you, as a financial late bloomer, can take to start actively managing your money and building wealth. And I’m going to do it using cute picture of beagles to lead the way (Bella will be proud).

In this post, I focus on gaining full clarity of your financial situation and I’ll describe three step-by-step (ooo baby 🎶) exercises that you can do to get there.

What is a “Ready to Bloom” mindset?

Before we dive into gaining full clarity of your financial situation, I want to touch on mindset, because there is no late blooming happening without a “ready to bloom mindset”. What is a “ready to bloom” mindset? Well, it’s a subtle or significant mindset shift that will propel you to gain control of your money and start prioritizing your financial future. You feel motivated, ready, and determined to take action. You’ve felt this way before in other aspects of your life, whether it has been as a parent or when dealing with adversity.

I’ve witnessed some pretty compelling mindset shifts in my work as a money coach. Take Stephanie, for example, a woman in her 40s in Canada who has gone through a divorce, prioritizes spending on her children, and felt she was “behind” in saving for her retirement. Stephanie even told me at one point that she knew that she would be working until she was in her 80s and didn’t feel that there was a point us completing a retirement calculator together. Over the course of us working together, she found her “ready to bloom” mindset. She decided she was done living paycheck to paycheck and was ready to make some changes. I witnessed such a change in motivation and determination during the time we worked together that she would happily surprise me on each coaching call with an update about a new step she’d taken.

So, do you have the “ready to bloom” mindset? If it's a “heck yes!” or even a “maybe..”, here are some steps you can take to gain full clarity of your financial situation.

Step 1: Do a Spending Analysis

If you’re determined to be a financial late bloomer, you’ll need to understand where your money is going.

To get a really good picture of your past spending (the good, the bad, the ugly), I recommend gathering the bank statements from all of your accounts (checking accounts, savings accounts, and credit cards) for the past three months. Going back further in time is fine, but there is a decreasing return the longer you spend on this task and I don’t want you to get too overwhelmed. Print out your statements and go through everything manually - giving all purchases a category (e.g., dining out, groceries, power bill, rent, kids, clothing - whatever breakdown works for you). Don’t worry about transfers between your accounts - just identify the spending. Then, identify your income. Finally, figure out what’s missing. How do you spend your money on an annual or irregular basis? Give these spending categories (e.g., Christmas gifts, car repairs) an average amount too. It's ok to guesstimate, we aren’t looking for perfection here.

At the end of the exercise, calculate 1) the average amount you spend on each category per month and 2) your average income per month.

Here are some questions you can ask yourself when you have finished the exercise:

Are the spending averages more, less, or the same than I was expecting to see?
Am I spending more or less than I am bringing in each month?
Are there any categories that I would want to decrease my spending in?
Are there any categories that I would want to increase my spending in?
Does my spending line up with my values and financial goals?

If this seems like a heck of alot of work that’s because it can be. In my Fresh Start Financial Flourish coaching program I actually do this step for my clients and we review the results together.

Step 2: Find out how your spending and saving compares to the 50-30-20 rule

Finding out how your spending and saving compare to the 50-30-20 rule is the perfect exercise for a financial late bloomer, or an aspiring financial late bloomer, looking to gain clarity of their financial situation. First things, first though - the 50-30-20 rule isn’t really a rule, it's more of a “rule of thumb”! It is a guideline for you if you are in your working years to follow so that you can be sure that you are living within your means, you aren’t stretched too thin, and you are setting aside money for your financial goals.

The 50-30-20 rule simply means that a maximum of 50% of your income should go to your “needs”, a maximum of 30% of your income should go to your “wants”, and at least 20% of your income should go to your “goals”. Your goals are longer term - they are your extra debt payments, savings, and investments combined. Where that 20% goes depends on your situation (e.g., if you have high interest debt, it would go there).

Here’s what to do: From the previous step, you already have your spending from the past three months categorized. From here, simply label each of your categories as “wants”, “needs”, or “goals”.

This can be a bit tedious and there are a lot of manual calculations involved so, to make it a bit easier, I’ve created an easy-to-use Excel Spreadsheet that you can use to see how your spending and saving compares to the ideal percentages. Simply plug in your numbers and then check the “Your Results” tab to see the result. There is absolutely no math or formulas to use! You can even put in weekly, bi-weekly, or yearly amounts and the tool will automatically calculate the monthly amount. Here’s the link - there is even a little video explaining how to use it.

Once you’ve found out how your spending and saving compares to the 50-30-20 rule, here are a few questions you can ask yourself:

What percentage of my income am I spending on my needs?
What percentage of my income and I spending on my wants?
What percentage of my income and I spending on my goals?
Are these percentages what I expected to see? Were there any surprises?
What adjustments can I make to my spending and saving to better align with the 50-30-20 rule?

Step 3: Calculate Your Net Worth

I’ll be honest, the idea of calculating my net worth didn’t really register with me until later in life. I just didn’t understand the significance of my net worth, nor did I have any idea of what it was! I also think there was (let's be honest, I know there was) a little bit of avoidance happening.

The truth is, your net worth is a strong indicator of your overall financial health. It is kind of like a financial report card. I recommend doing the calculation on an annual basis and noticing the trend.

To calculate your net worth, the first step is to add up the value of your assets:

Cash within bank accounts, such as checking, savings, money market accounts, etc.
Prepaid debit cards
CDs and savings bonds
Government bonds
Health savings accounts
Investment accounts
Retirement accounts
Life insurance policies with cash value
Annuities with equity
Value of vehicles including cars, RVs, motorcycles, boats
Value of real estate, including rental homes and primary/residential homes
Pension (only include the value of your pension if you were to extract it today, not its value into the future)

Then, add up your liabilities:

Mortgages
Home equity lines of credit or home equity loans
Credit card balances
Loans - including personal loans, auto loans, and student loans

Finally, subtract your liabilities from the total of your assets to find out your net worth.

Here are some target net worth amounts by age:

Age 30: 50-100% of your salary

Age 40: 200-300% of your salary

Age 50: 400-500% of your salary

Age 60: 600-800% of your salary

This is definitely another rule of thumb situation. Your needs will vary depending on your lifestyle and your retirement goals. It’s also important to understand that net worth doesn’t measure cash flow. Also, not all assets are created equal. For example, someone whose net worth is primarily made up of the equity in their primary residence is in a weaker position than someone whose net worth is primarily made up of liquid investments (you gotta live somewhere, right?).

Here are some questions you can ask yourself after you’ve determined your net worth:

Is my net worth lower, higher, or about what I expected?
How does my net worth compare to the targets above?

Conclusion

The phase on your journey towards becoming a financial late bloomer is gaining full clarity of your financial situation. You can gain this clarity using the three exercises we’ve gone through above: 1) doing a spending analysis, 2) seeing how your spending and saving compares to the 50-30-20 rule, and 3) calculating your net worth. If you’d like a guide as you complete these exercises, consider my Fresh Start Financial Flourish money coaching program - I’ll be with you every step of the way.

Remember, the journey to reaching your financial goals is personal, and there's no one-size-fits-all approach. Embrace the insights gained from these exercises as a foundation for your financial transformation.

Don’t miss another new post! Subscribe to my newsletter where you'll receive money management tips, personal updates (including very cute Bella the Beagle content), and more! Interested in seeing how your finances stack up against the 50-30-20 rule? Check out the Financial Fit Check, a free resource.

Julia McCleave