Starting the Journey

In our fourteenth episode, Sofie is joined by guest Melissa Leon, a finance expert. She shares valuable insights on how to rethink your emergency fund and budget to achieve your financial goals. She also covers the biggest financial mistakes people make and provides practical tips on how to avoid them. From developing good saving habits to analyzing spending behaviors, Melissa equips you with all the tools you need to take control of your finances.

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Melissa Leon is a 20-year finance and accounting professional passionate about teaching women to manage time and money. Melissa co-owns Two Sense Consulting (a Bookkeeping and Fractional CFO firm) and is the Podcast Host and Author of the #1 Best Seller “Efficiency Bitch”. Melissa has climbed the corporate ladder while raising three small children and uses B.I.T.C.H. to teach the five pillars of having it all without doing it all.

Book Website: efficiencybitch.com

Business Website: twosenseconsulting.com

Facebook & Instagram: @efficiencyb

Transcript:

Sofie: Hello everyone and welcome back to Claim Your Potential, the Empowerment podcast. I am your host, Sofie, and for this episode, we are joined by Melissa Leon to discuss how to manage personal finances and develop financial health.

Melissa is a 20-year finance and accounting professional, passionate about teaching women to manage time and money.

She co-owns Two Sense Consulting, bookkeeping, and fractional CFO Firm. Melissa is also the podcast host and author of the bestseller Efficiency Bitch. She has climbed the corporate ladder while raising three small children and uses B I T C H to teach the five pillars of having it all without doing it.

Please welcome Melissa Leon. Thank you so much for being with us today, Melissa.

Melissa: Yes. I’m so happy to be here and thanks for saying my last name right. You’d be surprised how many people say it wrong, so thank you for that.

Sofie: I mean, you had the pronunciation and everything.

Melissa: I do that on purpose because people always say, “Leon”. Drives my kids crazy.

Sofie: Oh my goodness.

Welcome to the podcast. And to start us off, I always enjoy hearing kind of the backstory as to, you know, why someone is passionate about whichever their topic is. And so coming from a personal finance lens, what has been the most difficult part of managing your finances, and how have you dealt with it?

Melissa: That’s a good question. I’d say my desire to learn more stemmed from my very first job. I was a bank teller at 16, and I didn’t know anything about money. I barely knew how to count it, but I learned very quickly that most adults don’t know about their own finances. And as a teenager, as a young teenager, I really witnessed that phenomenon of paycheck Friday, you know, every, this was in the nineties, so there wasn’t a lot of direct deposit. I mean, it existed, but it wasn’t very mainstream. And there were no ATMs. So people would come into the branch and they would cash their entire check, and then a couple of days later they’d be coming back, pulling the last $4 out of their account. And it really opened my eyes to what I didn’t want. I certainly didn’t know what I did want.

I had good role models. My parents were financially savvy, but you know, it’s not the kind of thing that people talk about even to their children and quite honestly, especially not to their female children. Generationally speaking, women are pretty uneducated when it comes to money. It’s only been the last two generations that have even been allowed to have a credit card in the United States.

So it’s one of those things that I figured out kind of the hard way, and now I can’t stop talking about it.

Sofie: I love that. And yeah, I mean this whole paycheck-to-paycheck phenomenon is, so, especially with my generation, it’s pretty much all we talk about is living paycheck to paycheck. Because especially Generation Z, generation Y, and even a little bit of Gen X didn’t have that financial education on how do you budget, how are you supposed to disperse your money so you’re not constantly, as you said, pulling everything out, using it all and then going, oh wait, I have nothing left over.

What are some other common mistakes that people make when it comes to managing their personal finances and how can some of these mistakes be avoided?

Melissa: The number one mistake I see is that people know how much they earn. You know, they’ll say, oh, I make $15 an hour, or I make $30,000 a year, or I make $50,000 a year. But they have no idea how much money they spend. And this is the number one problem. You know, if you ask somebody, and I do this a lot in my speaking engagements, I’ll say to everybody, okay, like, think about your bills. Write down what you pay for your rent or your mortgage, what you have your car payment, what do you think you spend on gasoline or food, or entertainment? If you have children, how much do your diapers cost? All the things that you. You spend your money on and then you go back to your bank account and pull last month’s charges. Both from your credit cards and from your checking and your savings account, and actually do the math for one month, and you will be shocked at how wrong you are most of the time.

This is generally speaking, of course. I happen to be one of those weirdos that knows exactly how much money I spend on everything. I tell this example in my book as well as in many of my speaking opportunities… I have an ice cream line on my family budget plan because I have three small kids who are seven, nine, and eleven, and we live in Arizona where it’s hot almost all year long, so we spend a lot of money on ice cream. And I specifically call out that ice cream line so that my family can see just how much money we spend on a treat like that.

It’s so easy for those types of things, those drive-through coffees or ice cream in my case, to really kind of get away from you. And then you wonder where all your money is, and that’s, if you don’t know, you can’t fix it.

And it’s kind of opening and turning on the light to that, to that issue.

Sofie: And it sounds like a lot of this has to also do with building a budget, but building a budget that works for what you’re actually spending money on, as well as, you know, the means that you’re currently in. What’s your income? And then, okay, what are your habits and how do we, you know, build a budget that reflects both of those sides?

And so what do you think are the most important elements of a successful budget?

Melissa: I think the word budget even can be misleading because a lot of times people will say, you know, I don’t have a budget. I don’t know what I’m doing. Really, all you need to know is what your habits are, what your past has been, and then you can modify your behaviors accordingly.

Like in my example, if I realize that I’m spending $500 a month on ice cream, but I can’t afford to pay my electric, maybe I need to drop that back to a hundred dollars a month and now I can afford my electric bill.

Believe me, the electric bills in Arizona are $400 a month. It’s just so hot.

It is crazy, but you know what it’s gonna be. But if you don’t know where you’re spending your money, how can you possibly know that you’re out of line somewhere, and for me, I believe you start with knowing what your habits are.

If you can take the last month better yet, the last three or six months, if you have the tenacity to go through all those transactions, you will really uncover patterns about yourself and your own family’s spending habits, and then you can come up with the two or three, maybe five areas you want to improve and just monitor that.

It doesn’t have to be a hard budget. It can be something that you’re looking to move in a better direction. I think about budgets when I talk to my small business owners because that’s the space where a budget is important for a financial understanding of where your business is going iff you’re gonna talk to an investor.

But a budget is a guess, for lack of a better word, on what you think you’re going to do in revenue and expenses. And while I completely advocate for people to have that in their individual lives, I don’t think most people are ready for it. It’s, the idea of a budget is so overwhelming. I wanna take you back five steps and say, just look at your current habits and then pick one or two items to improve, and then a couple of months later, one or two more items to improve.

And you’ll be really surprised how well that works.

Sofie: I like how you mentioned that strategy of just picking a couple of things to focus on so that it’s not overwhelming. I think that’s something. When we hear, oh, you need to manage your personal finances, it’s this big scary thought of, oh my gosh, that’s so much work. I don’t know how to comb through all those old receipts and what’s important for me to pay attention to, and it becomes this very stressful thing.

How have you been able to stay motivated and consistent when it comes to managing your finances?

Melissa: For me, I automate everything, so I do my very best to use my debit card or my credit card as often as possible.

There are many generations that will tell you cash is the way to go. You have to use cash. Then you have, you know, the envelope systems of Dave Ramsey’s time.

I don’t disagree with some of that philosophy, but I do believe that technology has enabled us to have real-time reporting inside of our bank accounts.

If you swipe your debit card right now, it’s going to show in your bank app within the next 45 seconds. It’s that fast, and you can use that data from your bank account. I download mine into a CSV file, which I can put into Excel or to numbers and use that to really analyze my spending. I don’t need to keep receipts or try to track them.

You’re looking for broad-stroke generalizations on where you spend your money. And then once you have that information, you can build upon it month over month. I didn’t personally get really into the idea of wealth management for my own family until after my third child was born, and I thought, okay, I need to figure out how this is going work now that I have three kids and they are going to have big life expenses coming up.

I reached out to a wealth manager. That idea totally freaked me out because I didn’t have any wealth to manage and I was really intimidated by the thought of talking to her. But she taught me something really valuable that I teach now too. And it’s this concept of four pockets.

So you have, you know, four pockets of your pants. The front two pockets are going to be money that you know you need right now. So one pocket is your monthly expenses. It’s your rent, it’s your mortgage, it’s your car payment, it’s your gasoline. The other pocket is going be a smaller savings account that is for emergencies that are likely to occur in the next 12 months. So things like new tires or your water heater breaks, or your kid has to go to the emergency room and you need a $300 deductible. Things like that, that you know life’s gonna happen, but it’s not part of your normal. It may also be a place where you keep extra money for Christmas, things like this.

And then the back pockets are going be more of a long-term strategy. You have to have to think about those back two pockets in order to create wealth. That’s going to be long-term retirement. Like putting money into tax-deferred retirement accounts. Depending upon where you are in the world, those look very different, but money that is set aside for when you are no longer working.

And then the other pocket is going be for investments so that you have a large amount of money for a down payment on a home. Or to buy a car in cash if that’s what you want to do, or pay for a child’s college tuition or wedding or these types of major life events that take a lot of cash to be able to pull off.

Those four pockets are how I started. And so now I analyze those four pockets monthly, and that really helps keep me motivated to keep the ball rolling. I’m always living paycheck to paycheck in my front pocket with my monthly expenses, and I take all the rest of it and put it into those other three pockets so that I have money for the future.

Sofie: And speaking of an emergency fund, I’m glad that you touched on that because something that I don’t think I really ever heard in my life was this concept of an emergency fund, no one ever taught me that this is important for us to actually do. And so what are some tips that you have for building an emergency fund for people that really don’t have one, and also don’t really know why we need one?

Melissa: There are all different types of philosophies on that emergency fund. Some people will tell you it’s two to three to six months of your expenses. Well, if you don’t know what your monthly expenses are, that’s gonna be a really hard thing to get to. So step one is figuring out what your current average monthly expenses are.

So we talked about the things that come up in life that require that emergency saving. Or like I said, you run over a tire, you run over a nail and your tire blows out, and now you have to come up with $500, or your dog, you know, eats a corn cob and has to go to the emergency vet, which has happened in my life, and had to have her stomach pumped for $500. Things like that, that like, you can’t not do it, but what do you do if you don’t have the money? So you need that little side pocket of things.

Now, obviously the longer you live and the more complicated your life becomes, in my case, having three kids and a home that I own and a dog that eats everything, you start to have to manage that pocket a little bit differently.

When I was single or even after we were newly married, I didn’t need that much money because the worst thing that might happen is I’d run over a nail. But now it could be any number of things, and you just want to make sure you never have to go into debt to deal with those kind of predictable scenarios.

They might not happen every year, but in five years, chances are good that one of those things is going to come up and you’re going to need the cash to support yourself.

Sofie: Absolutely. Yeah. I think that the only emergency fund education I had was one of my parents and they said, oh, you just have to save in case you don’t have a job, so you save six months of expenses.

And so I was like, oh, okay. So I just need to take my, you know, six months of paychecks, no problemo. But as you’re, you know, as you said that there are things beyond that scope. There are things beyond, you know, maybe being out of a job. There are things that come up, whether a pipe bursts in your house. Or as you said, your child has to go to the hospital and you have to get your dog’s stomach pumped. All these different things that we really don’t think about.

And I love that you said that because now I’m thinking about my own emergency fund. I’m thinking, wait a second. I don’t think I have enough in there if something were to happen beyond the scope of me being out of a job for a couple of months, I don’t.

And so I think that’s something that I hope some of our listeners can kind of have that light bulb go off as well and go, oh, wait a second. I should actually start setting aside a little bit more each month into that fund so that I’m not panicking if you know, life situations that we just don’t think about come up.

So thank you for saying that. And I, in terms of resources, I think that’s something that a lot of us kind of lack in understanding is we don’t pay attention to financial information.

We put it on the back burner and we focus on career. We focus on family life. So I just wanna make sure that we’re giving our listeners a little bit of resources that they can tap into. And so what are some resources, whether it’s, you know, a podcast you love, or a book you love, or software that you really enjoy using, that you have found helpful when it comes to staying informed about financial matters?

Melissa: That’s a good question. There are so many resources, so many. I think the problem is, it’s really an intimidating topic for most people. When I was writing my book, the largest chapter in the book is the letter B, which stands for bank meaning money. And I interviewed a lot of people and I asked them like, do you feel comfortable talking about money?

And every one of them said, no. I asked them if they were given any education on money. They almost all said no. I think 5% said yes, but informally. Even amongst my accounting professionals. I mean, I have spent my entire career in the area of money. I specifically work with small business owners today, but even those that support individuals are often really uncomfortable talking about their own money.

And so I think a lot of it needs to come from dialogue. You need to talk to the people in your life who you trust about money, whether that be your parents or your grandparents, even asking them what they did wrong that they wish they had learned to do better. That’s education. And it doesn’t have to be that you’re reading a textbook or taking a course, in fact, I recommend that you don’t.

The people in your life actually know a lot about money, even if they don’t think that they do. But having that dialogue of what’s gone wrong, and what’s gone right, is really important. And I think the other thing is recognizing that there’s going to be generational gaps, right?

Like my parents also gave me that same advice of in case you don’t have a job. But we live in a day and age now where most people have some type of a side hustle, if not two or three. So the idea of never having a job, although there are plenty of people who don’t, is just not the same as those that were raised by people who were like my parents, who were raised by adults who lived through the Great Depression.

So that philosophy is so much different for them than it is for a generation that grew up with technology where we, I mean, you and I are having a podcast conversation by internet, so you have to kind of take some of it with some knowledge and understanding that there’s a huge generational gap, but also there’s so much to be learned about where we’ve come from.

If you’re looking for finance advice specifically, I talk about money all the time on my podcast, so if you go to Efficiency Bitch, then you can scroll through the different episodes and anyone that says B, is money. It’s the largest chapter in my book. I’m a huge reader, so I just bought about five different books on finance recently and I’m a professional in money and I still want to know other people’s philosophy about it.

So I’d say, you know, listen to your, your friends and your family. Listen to other podcasts. Read books or, or audibles. But then also, I mean, the most knowledge is gonna come from your own behavior. So if I say it again, I’ll say it a hundred times, it’s go analyze your own spending and the light bulb will really turn on in some big ways.

Sofie: Thank you for sharing that. And to wrap everything up, what is, in your opinion, the most important piece of financial advice that you would give to someone that’s just starting out to manage their personal finances? Like the big key takeaway?

Melissa: The big key takeaway again is just really understand how you spend money.

If, you are focused too far into retirement or too far into investment, you will lose the details that will help build you wealth. And understanding how much you spend throughout the different phases of your life will tremendously impact your ability to build wealth in the future. There is no reason why a 25-year-old shouldn’t be able to have a down payment on a home, but we’ve set our younger generation up to not know how to do that.

And so if you start right after high school and you, you know, go to college and you have a part-time job throughout and you are able to put a little bit of money aside all the time, you should be able to have a nest egg to buy a home. I didn’t have that benefit. I had to scrape and pull it all together and I was 33 before I bought my own home, and I’m 42 now.

So even as a finance professional, it took me a really long time to figure that out, and I think if I could go back and talk to myself in college or just after, it would’ve been about focusing on where I spend my money.

Sofie: I could not agree more. The amount of people that I speak to, that are my peers, frankly just spend, spend, spend, spend, spend. And then are like, oh, I have no money in savings. Again, we don’t have that education on, how you’re supposed to be managing your money so that you’re setting yourself up for the future.

And so thank you so much for sharing that and absolutely, I am already thinking about the many, many different ways that I can manage my money better and that I can start putting a little bit more away for my emergency fund and also a down payment on a house because I would love to own my own.

So thank you so much for sharing, and thank you again so much for coming onto the podcast, Melissa.

Melissa: Absolutely, Sofie. Thanks for having me.

Sofie: Thank you.