Design Thinking: Income & Cash Flow
As promised in our What We Want for you in 2019 article, we are jacked about design thinking this year, and how you can use it to optimize your life and your finances to create the life that you didn’t know you always wanted.
This month, we are applying this thinking process to cash flow planning. Cash flow planning, and it’s negatively-received synonym, budgeting, is a sticky, emotional, and frankly vulnerable process to begin with. Reviewing, planning for, and just managing the day-to-day of the money that you bring in and the money that flows out can be much more terrifying than the somewhat more strategic process of long-term retirement, tax, and estate planning.
Cash flow planning is about now. Opening up the kimono, filled with the unvarnished present, and making decisions about how you want to behave, and what habits you need to change… well, honestly, it’s hard work.
Thanks to design thinking, we can make it a great deal easier, and much more satisfying.
Step 1: Empathize
Money, a tool and medium of exchange by definition, is inevitably wrapped up in unique meaning and emotion for each individual person. Admitting that you have feelings about money, and determining what they are, takes vulnerability.
Despite what many of us want to believe, no one is completely free from emotional considerations when it comes to money. Most people experience worry, regardless of their actual income, demographic, or socioeconomic status. Yes, even those people living the life that you are confident would free you from money concerns – they have money worries.
The conversations that we have, with others and with ourselves, are indications of our own money story. Your money story is your blueprint, the preset program you were provided with. You were not born with this program and accompanying set of values – you were taught. Whatever surrounded us as children, adolescents, and young adults impacted our financial beliefs, values, emotions, and skills. They became the automatic, unconscious reactions that surface and resurface throughout the rest of our lives, unless we take considerable effort to create change.
At this stage in the design process, your questions are:
- Who are you?
- What are your values?
- What choices do you make, consciously and unconsciously?
- Are your choices aligned with your values?
- Do you believe that you deserve wealth?
With those answers, we can start moving into the next step.
Step 2: Define
Now that you have empathized with yourself and come to understand your own motivations and beliefs… what do you want to keep? What will you leave behind?
If you do not currently have a positive relationship with money, what would it mean if you did? For you to consider yourself “successful with money,” what would your life look like?
There are many, solid social constructs that give us these answers. When your goal is to create a plan that sticks, one that you’ll adhere to like Krazy Glue, you have to find your own definitions. Sure, it’d be nice to impress other people but that only lasts so long. Impressing you is what will empower you to create change, and new habits.
Step 3: Ideate
You’ve got your why. You’ve got your what. Now let’s start talking about the many, many different ways that the “what” could appear.
Come up with a list – as long as you can – for all the ways you could make your money success a reality. Could you reduce or eliminate debt? Could you reduce expenses? Could you increase your income?
Don’t run straight to the numbers. Go back to your values and really connect with what is important to you. If spending the maximum amount of time possible with your family is a key value, increasing your income – especially if it’s based on hours worked – might not be a real possibility for you. When you focus on your values, the ideas that arise will become cleaner, clearer, and much more attainable.
Step 4: Prototype
Now is the time to start building models to demonstrate what could happen. Create a spending and savings plan, on paper or digitally – whichever works best for you. Think about how you would spend and save going forward. Avoid tracking the past. That way madness (and regret, guilt, and other terrible things) ensues. Stay focused on how you would like to interact in the future. Think about how the cash flow plan you’re creating would impact you in real life. What does it look like? How do you feel? Is there a deficit on your paperwork? Is there a potential deficit in your values? Don’t cut things out that you enjoy, those things that are meaningful to your life – at least, not for the sake of a budget. Consider what you are excited about committing to, and what trade-offs feel easy, given what you’ll gain.
Step 5: Test!
Once you have arrived at a spending and savings plan, it’s time to take it for a ride in the real world. Try it out for the first month, knowing that some of it will work well and some of it will not. Neither will make you a success or a failure. The goal here is to gather data. Does it work in reality? What results occurred that you hadn’t considered? How would you tweak that cash flow plan next month to avoid negative results and increase positive results?
Then test it again. And again. Reflect, learn, and update as you go. Your life, your money, and most importantly, you, will evolve and change over time. Get out of the cycle of blame and guilt. Start a cycle of growth, learning, and habits that will propel you into a successful financial future.