Documenting Your Financial Story

Have you ever taken the time to create a chronological timeline of your life? In my first book, Planned Excellence, (which can be ordered through the author) I wrote about doing exactly that. I encouraged the reader to reflect on his or her life and record every event he or she could remember about his or her life from birth to the present moment. I encourage this type of introspective analysis as part of the process of really understanding who you are based on the events of your life. Of course, the early years will be more about what you were told, but you can still understand the events that shaped you as a person.

In many ways, creating a financial timeline can produce the same impact as a chronological timeline. As I have grown in my understanding of who I am, I have discovered that life is an interesting tapestry of positive, negative, and neutral experiences. Recently, I have been recreating my financial time line to better understand my financial journey and the decisions I have made and where those decisions have taken me. From the starting point until the present moment, my financial history tells a story of ups and downs and sometimes sideward movements. Each significant moment of life can often be marked with a financial impact.

A financial timeline is easy to create and it tells a story of your life in a dramatic way. By using a few pieces of information, your mind can be flooded with memories of the trials and triumphs of your life. To create this timeline, simply request a copy of your earnings record from the Social Security Administration. Once you receive this record, begin to build a spreadsheet using the following headings. You can write this out on paper, but I find using a spreadsheet allows me to fill in the cracks with additional data. To get started, think in terms of these 8 categories.

·       Year

·       Age

·       Main Employer(s)

·       SSI Wages

·       Medicare Wages

·       Financial Actions

·       YoY Wage Increase / Decrease

·       Percentage Increase

As self-explanatory as these fields might be, I will cover them briefly so your timeline will reflect the timeline I created and continue to use to record my financial history. In column 1 of your spreadsheet, record the date of your first reported taxable income. In column 2, insert this formula =A2 - (your birth year). As an example, I will use the starting year of 1980 with the fictitious employee being just 16 years old.

	A	B
1	Year	Age
2	1980	=A2-1964

The third column could take some time to remember. The goal here is to record the main employer(s), who provided the main body of earned income. If you had more than one employer in a given 12-month period, then you would record each main source of income in column C. In some years, I worked for as many as three employers to increase my income to a livable wage. The following data is given as an example and in no way reflects anyone’s earning history, employers, or years of employment. In this example, let’s say the first main employer was Arbys, a quick service restaurant. Colun A is the tax year associated with the reported earned income. Column B is the age of the employee. Column C is the main source of the reported earned income.

	A	B	C
1	Year	Age	Main Employer(s)
2	1980	16	Arbys
3	1981	17	Arbys

The next two columns will require you to have a copy of your Social Security Earnings Record. To get your copy, go to https://www.ssa.gov/myaccount/SSA-7004.pdf. Fill out the PDF form and print a copy. Send it to the address on the form to receive a history of your reported income. From that record, you will be able to complete the next part of your spreadsheet. Add column D and E to record the wage information. Column D be titled “Your Taxed Social Security Earnings” and column E would be titled “Your Taxed Medicare Earnings.”

	A	B	C	D	E
1	Year	Age	Main Employer(s)	Your Taxed Social Security Earnings	Your Taxed Medicare Earnings
2	1980	16	Arbys	$1,531	$1,531
3	1981	17	Arbys	$2,890	$2,890
4	1982	18	Arbys	$3,570	$3,570

The purpose of recording the two columns which are found on the Social Security Earnings Record is primarily for one reason. There may be years where a significant financial event caused the Taxed Medicare Earnings to be greater than the Taxed Social Security Earnings. My record only shows this happening once following a layoff and company buy out of my pension. This may or may not your story, and it may or may not be the only time this type of variance occurs. However, for the record, I would recommend documenting both columns even if there is no difference.

The next column you will want to add will be Financial Actions. These are events that have a direct relationship to the increase or decrease in real wages. In the example, the employee decided that she would join the U.S. Army in 1983. Thus, the financial actions that resulted from that decision were the number of promotions that happened in the first two years of joining the service.

	A	B	C	D	E	F
1	Year	Age	Main Employer(s)	Your Taxed Social Security Earnings	Your Taxed Medicare Earnings	Financial Actions
2	1980	16	Arbys	$1,531	$1,531
3	1981	17	Arbys	$2,890	$2,890
4	1982	18	Arbys	$3,570	$3,570
5	1983	19	Arbys / U.S. Army	$5,319	$5,319	PV1 / PV2
6	1984	20	U.S. Army	$8,360	$8,360	PFC

As you can see, leaving employment in the private sector and entering the military increased wages. The following year, a promotion to Private First Class resulted in an increase in real income. These are financial events that directly impact your earning potential. Other financial events could be promotions, layoffs and buy outs, moving from one employer to another, or even earning a degree. It is important to document these because it tells the story of your financial maturity.

To capture the full impact of your financial decisions, you can add a column to capture special events such as becoming debt free, paying off your mortgage, and down-sizing to a smaller house after the children are gone. This might not increase your taxable earnings, but events such as these impact your ability to maximize your savings potential. So it is nice to record such events to fill out your financial family tree.

The next column requires a formula. Add the column that determines the increase or decrease in real taxable wages year over year. Insert the following formula =E3-E2 in column G. This is important because it shows the real impact of the financial actions and decisions you made. For the most part, one would expect to see an increase in income year over year. However, there are times when the economic environment will flat line or reduce real wages. Again, this is part of your financial timeline and it is helpful in understanding your financial journey.

	A	B	C	D	E	F	G
1	Year	Age	Main Employer(s)	Your Taxed Social Security Earnings	Your Taxed Medicare Earnings	Financial Actions / Decisions	YoY Wage Increase / Decrease
2	1980	16	Arbys	$1,531	$1,531
3	1981	17	Arbys	$2,890	$2,890		$1,359
4	1982	18	Arbys	$3,570	$3,570		$680
5	1983	19	Arbys / U.S. Army	$5,319	$5,319	PV1 / PV2	$1,749
6	1984	20	U.S. Army	$8,360	$8,360	PFC	$3,041

Financial events such as a reduction in overtime, changing employers, or layoffs and corporate downsizing can create negative financial events. These events will be reflected in the YoY Wage Increase / Decrease column. Other events such as starting or stopping a second job can have a significant impact on real wages. These are all part of your financial timeline that tells the story of your life. Understanding your times of momentum and times of struggle can help you create focus on areas of improvement and opportunity. For the final piece of the puzzle, you can add a column that measures the percentage of your YoY increase / Decrease. The simple formula for that column is =SUM(E3/E2)-1.

	A	B	C	D	E	F	G	H
1	Year	Age	Main Employer(s)	Your Taxed Social Security Earnings	Your Taxed Medicare Earnings	Financial Actions / Decisions	YoY Wage Increase / Decrease	YoY % Increase / Decrease
2	1980	16	Arbys	$1,531	$1,531
3	1981	17	Arbys	$2,890	$2,890		$1,359	88.76%
4	1982	18	Arbys	$3,570	$3,570		$680	23.52%
5	1983	19	Arbys / U.S. Army	$5,319	$5,319	PV1 / PV2	$1,749	48.99%
6	1984	20	U.S. Army	$8,360	$8,360	PFC	$3,041	57.17%

Doing this gives you the ability to quantify the quality of a financial event. If the event is associated with a decision you made, such as changing employers or accepting a promotion, then you can measure the financial impact of your action. The year after I earned my BA in Management I received a promotion. The year following that, I received a second promotion because my degree had afforded me the qualifications to be advanced two levels above my initial position. Since my manager could only promote one pay grade at a time, I had to wait for the second promotion, but never the less, I eventually realized the financial impact of my effort to earn a BA.

If the event you document is related to an economic shift, such as the raising of the minimum wage, or a step increase based on years of service, then you might want to look at what you are doing to advance your earning potential. Settling on the government or the benevolence of your employer is not a strong financial strategy. You have to take ownership of the elements that lead to opportunity and then seize it when it presents itself.

On the day that I was hired into what I considered a career position, I focused almost exclusively on working overtime to increase my financial compensation. However, I soon realized that advancing my career had little to do with how much overtime I worked. It required me to pursue formal post-high school education and the subsequent promotions that resulted. From that day forward, I set out to increase knowledge and position myself for promotion. Since that first day on the job and three companies later, I have received five promotions in nearly twenty-six years. That is not earth-shattering, but it does show me that I have not relied on the inertia of the economy to provide for my income. Keep in mind that I also received two layoff notices over that same span of time.

You might ask yourself “Why has he advocated building a financial timeline and what does that have to do with how he made his first million?” To which I would respond; A financial timeline, much like a general life timeline, provides you the opportunity to document the events in your life that contribute to your success, in this case your financial success. Will you find moments when events contributed to some failures? Absolutely, but if you can show yourself that you have made some positive movement, then you will realize that you have made gains year over year. When momentum wanes, those moments of success can be strong motivators.

The other aspect of a financial timeline is how it reveals to you how you are moving towards making your first million and in some cases, your second. I have been working for nearly 37 years and I have earned over $1.8m in taxable income over that time. Compare this to how much I have saved and I have seen how much life gets in the way of preserving that income. It is important to keep this in mind. The most common cause of financial success is hard work. The second is intelligent decisions. Make no mistake, few people become wealthy overnight and few stay wealthy over a life time. Documenting your financial progress is one way to become more motivated to continue to work hard and make intelligent decisions.

I have written a book that captures the financial strategies I have used over the last decade to build up momentum in my financial affairs. It is titled Simple Wealth building Strategies and it is available on my website http://kenrupert.com. Through two layoffs, one in which I ended up accepting employment with a company for nearly a third less than what I was earning, and several lean earning years, I still have the motivation to pursue making my second million. Why? Because I know what has caused those events and even though I am not one of the world’s wealthiest, I am content knowing that I have a rich financial history.