178 | The Facts of Your Finances

Your brain is lying to you about what’s going on with your finances.

If you’re managing your money based off estimates and ideas in your head, we need to talk.

In this episode, let’s talk about the importance of knowing the actual facts of your finances and a few examples of how going off estimates can steer you wrong.

• • the importance of actual numbers in personal finance
  • how many lawyers approach their finances
  • my estimate of our net worth vs. our actual net worth
  • my clients’ estimates of their spending vs. their actual spending
  • one client’s estimate of his net worth vs. his actual net worth
  • my clients’ estimates of their debt balances vs. their actual debt balances
  • the importance of working with actual numbers vs. estimates in your finances
  • how knowing your actual numbers will lead you to approach your finances differently

You’re listening to Wealthyesque. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about the facts of your finances. One thing I love about personal finance is we are dealing with numbers which means they are easily quantifiable. There’s no guesswork involved or anything like that. We can look at the numbers and see exactly what we’re working with. However, I have found that many lawyers don’t look at the numbers. We will instead have these estimates in our heads of what the numbers are, like how much we’re spending or how much debt we have or what our net worth is. But those estimates usually aren’t based in any kind of fact, and generally the estimates and ideas are almost always wrong. So I have found that this can go both ways where it’s wrong and that the actual numbers are worse than people think. But also that they’re sometimes better than people think. And when I say better or worse here, I’m not saying it in an objective sense, like these numbers are good and those numbers are bad, but more so in the sense of what the estimate is in relation to what the actual number is and where the person will want that actual number to be ideally. Like there are times where a person would want the number to be higher, typically like your net worth or your savings. And then there are times where you might want that number to be lower like the amount of debt you have or how much you spend. And we are going to go through some examples here so I can clarify what I mean even further. So I’ll start with my own example. My journey with my personal finances started back in 2016. I had been working in my first real job I was in big law for about two years and I was making six figures. I started at 135,000. And for context, my husband was a med student the first year so he didn’t make anything that year. And then he was a resident the second year and he started around 45,000. So we were making good money. We have been bringing in six figures for two years and I just knew our net worth was something in the six figures. But the thing is I had no reason to believe that I had zero evidence. I hadn’t looked at anything with our finances super closely beyond just looking at our checking account and making sure that we weren’t overdrafting and looking at our net worth was a part of how we started getting on top of our finances. And when we calculated our net worth, not only was it not six figures, it wasn’t even positive. It was negative 342,000. So I had this idea in my head that our net worth was positive six figures and I was wrong. The real number was worse than what I was expecting. Another example of this is my clients estimate of their spending in different categories and food is usually the biggest one. So there’ll be like oh I probably spend about x like you know, I probably spend about $1,000. And just like with me with my net worth, they have no evidence no reason why they think it’s whatever amount they say. It’s just this idea that they’ve come up with in their head. But then when we look at the actual facts, like when they do their look back and they see the actual numbers that they’ve spent in the last month or so, almost every single time it comes out to be about one and a half times what they think it is. And as I said earlier, this can go the other way too. So I had a client who was so focused on how much credit card debt he had, that he just knew his net worth was negative like he was like, my finances are in shambles. But when he actually looked at it, he had a positive net worth even though he had credit card debt. And I’ve also had clients who assume that they have all this debt and so much, but then when they add it up is much less than they think. And I share those examples to say you need to know the facts of your finances. Because nine times out of 10 Your brain is lying to you if you don’t have the actual data to back it up. And when you’re operating off of assumptions that aren’t true, you can’t actually move forward and make the progress you want to make. So we took much different actions, knowing that our net worth was negative 342,000 versus when we thought it was probably in the $100,000 range. My clients who realize how much they are actually spending on food are able to make changes to reduce that cost. My client who believed his net worth was much lower than it actually is, has a different outlook on his finances now and doesn’t beat himself up as much the same with the clients who thought they had way more debt than they actually had. And they may still have things that they want to improve with their finances, but they can make those improvements from a different place and not be beating themselves up. Ultimately, nothing bad comes from knowing the facts of your finances. In fact, knowing the facts is the only way to get an effective plan for your finances that will actually get you where you want to go. So this is your sign. If you’ve been working with estimates and ideas of what’s going on with your finances in your head. Go look at the actual numbers. Get a picture of what’s actually happening. And then from there, you can create a strategy that will allow you to achieve your goals. And if you’d like personalized support on what to do once you have the actual facts of your finances, be sure to come join us in Money Mastery. You will receive a step by step plan of how to move your finances from where you are now to the goals that you want to achieve. So just head to rho thomas.com/join To get started all right. That is it for this week’s episode. Please take a second and share this episode with a friend or two who can use this information. I want to bring the freedom and flexibility that come with having control of your finances to every lawyer so you sharing with a friend helps me to do that. As we close out friend I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently week after week. You’ll continue to take steps to regain control of your time to build wealth and live the life of freedom and choice you deserve. Talk to you later.