Ignoring your finances because you’re just not good with money?
It might sound harsh, but here’s the truth: that’s an excuse. Sure, there are people who may be naturally more inclined to be savers while others like to spend.
But if you fall into the “spender” category, it doesn’t mean you’re doomed to a poor financial situation. The same is true if you feel like you don’t understand personal finance or investing.
Everyone starts somewhere, and thanks to the Internet there’s more information available today than ever before. That provides you with an amazing opportunity to educate yourself and quickly get the answers to your financial questions.
What’s likely to be the real cause of feeling like you’re not good with money isn’t that you were born that way or that you don’t have access to the information you need. The problem is probably with your current financial habits.
And the good news is that you can change those habits. Anyone can, if you start with these 5 simple steps to make it happen.
1. Track Your Spending
Ever heard the old saying, “you can’t manage what you don’t measure?” It’s true! If you don’t measure what’s going on in your life, it’s going to be impossible to manage it successfully.
Think about this in terms of your personal finances. Of course you’re going to feel like your money situation is out of your control if you don’t know what’s coming in each month, how much is going out, and what you’re spending on.
The first step is to track your spending — and that means tracking it down to the last cent that leaves your bank account. It might sound tedious, but it’s actually easy to do thanks to a number of tools and apps.
You can start with pulling all your finances together including savings, investing, income and expenses all in one place to help you visualize your complete financial life through an online account aggregator like Mint.com, or if looking for a more guided approach, working with a fee-only financial planner who can provide mobile online planning tools combined with personalized advice.
Or you could take it a step further and not just track your spending, but build a budget to keep that spending on track. You Need a Budget is a popular option that will help you take control of your cash flow.
2. Think About What You Really Want
Once you start tracking your spending, you can see exactly how much you spend and where that money goes.
And that can be really eye-opening if you’ve been ignoring your finances for the past few years. It might even be painful, but it’s important to be honest with yourself and face the truth about your money.
You might find you’re spending way more on certain categories than you thought. Or you might realize that you’ve been feeling like you don’t have enough money because it’s all been going to little things that add up.
In either case, reckless spending can cost you. You know that credit card debt is bad, but we’re talking about something even bigger than that.
When you spend on stuff that, ultimately, doesn’t really matter to you or doesn’t add a lot of value to your life, that comes at the cost of the ability to purchase what you do value.
All those weekends out with friends and all the meals and snacks you buy during the week to get you through your hours at work may seem harmless now.
But these purchases are what costs you the ability to take a trip and backpack through Asia this year. Those everyday spends will stop you from saving up for the house you really want someday. And ultimately, they may cost you your ability to reach financial freedom in the future.
This doesn’t mean you can’t spend anything. To be good with money, you need to spend on what’s really important to you — instead of just blowing everything on short-term stuff that doesn’t actually provide you with happiness and important experiences.
3. Change Your Perspective
Spending on stuff you don’t value today comes at the price of the financial future you want tomorrow. If you’re having a hard time understanding that — or just want to YOLO and not worry about it until later — you might enjoy this article from Whitney Cummings.
In it, Cummings admits to a past history of not being good with money… until she changed her perspective. She said she started subbing the word “money” for “freedom” when she thought about her finances, and that dramatically changed the decisions she started to make.
“For example, if I was wondering about putting money into my 401(k), which I’m always hesitant to do because I want to see the money in my account now, I’d ask myself ‘Should I put some freedom into my 401(k) so I have some freedom when I get older?’” Cummings writes. “All of a sudden, it was a no-brainer.”
See if this simple shift can help you put your financial life into perspective. When you consider what you’re really trading your money for, it might help you make smarter choices today that you’ll be happier with in the future.
4. Automate What You Can
People who are good with money aren’t necessarily more disciplined than you. They might just apply the idea of working smarter, not harder, to their financial lives.
How? By automating what they can. This means setting up direct deposit so money goes straight into their checking account — and setting up automatic transfers to savings, so they pay themselves first whether they think about it or not.
That also means there’s less cash availalbe in their checking accounts for spending, and creates a forced savings effect. When you automate, you no longer have to make the tough decision of “should I save, or spend on what I want today?”
It’s done for you. You can do the same with other pieces of your financial life, too, like contributing to your investments to make sure you’re steadily building up the wealth you need to support the life you want.
5. Don’t Do It Alone
If you’re still feeling stuck, stop trying to take all this financial responsibility onto your own shoulders without help. Financial planners can not only help you straighten out your current money situation, but they can also help you:
- Set goals for the future
- Develop an action plan that will get you to those goals (while still providing some wiggle room in your budget to have some fun today)
- Provide advice on the best course of action when big financial decisions come up
- Give guidance and support, almost like a coach would do for you, along the way
It wasn’t always like this. Traditionally, financial advisors were old guys in suits who helped rich people manage their money.
But the industry has changed, and today, it’s much easier to not only find a financial planner who is your age and understands your specific challenges, but specializes in serving younger clients who haven’t gotten a chance to build wealth yet.
That means they can show you what you need to improve your financial situation, and can do so at a price your budget can actually handle.
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The information presented is not intended as financial advice, and you are encouraged to seek such advice from your financial advisor.