Too often, people make blanket assessments about their overall financial situation without digging deep enough into the details. They make statements like “I never have any money” or “I just got a raise so I’m good”. These types of assessments are based only on the macro and don’t get to the heart of what’s really going on with your money.
For starters, these blanket assessments are overly broad. On top of this, if they’re negative assessments, they can make a person feel less empowered to do anything to change their situation. If they’re positive assessments, it can cause the person to become overconfident and feel like they’re doing better than they really are.
Focus on the Details
There are several moving parts as it relates to managing money. For example, there’s cashflow, there’s reserves in the bank, there’s credit worthiness, there’s overall debt levels, just to name a few. Each of these parts must be evaluated individually and independently to have a clear picture of how you’re doing overall.
The person that claims they never have any money should focus on understanding where all their money goes. This should provide some clues as to why they never have any money. The person that claims to be good because they received a pay raise should focus on how they can best use that money to help them improve their financial situation, instead of assuming the “extra” money will automatically make things better.
Give Yourself the Incentive
From my experience working as a financial professional, I’ve learned that managing money is like dieting. Most people know what they should and shouldn’t be doing with their money. However, if the incentive for making good financial decisions is not apparent, we get comfortable and tell ourselves that everything will be fine.
Most people have plenty incentive for managing their money better. Some have more debt than they prefer to have. Some would like to invest more of their money. Some people realize they waste more money than they should. These types of thoughts are real but not necessarily pressing. Life remains comfortable for the most part whether we address these things or not. This is where incentive comes in.
We must give ourselves reasons to do the things we know we ought to do. For example, for the person who has more debt than they prefer. Perhaps the incentive is paying off most of that debt so that their credit score increases. For the person that wastes more money than they should. Perhaps the incentive is to stop wasting money so they can invest it and get a good return on it. In other cases, we don’t choose the incentives, the incentives choose us. For example, maybe someone has decided to get married soon and doesn’t want to carry financial dead weight into their new situation. Maybe someone was already married but got divorced and things are a lot tighter financially. Now they must do a better job managing their money to survive on their own.
4 Key Ingredients to Building Your Ideal Financial Situation
It’s not possible to change your financial situation overnight. Improvements happen incrementally as you lock in on one or two specific things at a time. For anyone interested in improving your overall financial situation, four things must exist.
You must perform a detailed assessment of your overall financial situation to really understand what’s happening. Macro views such as I never have any money won’t tell the full story. A detailed assessment should lead you to those specific areas that need to be improved so that the overall situation can improve.
Your focus should be on achieving your most pressing financial objectives one at a time. If you want to own a home, instead of renting one, and need to build up savings for a down payment. Focus on ways that you can save up a down payment as quickly as possible. Additionally, once you identify your specific objective, be sure to specify what the reward will be after you accomplish that objective. For example, once I own a home, my mortgage payment will get me more than just a roof over my head. I’ll be building up equity in an asset that will likely increase in value the longer that I own it. This is important because the more compelling the reward, the more likely you are to follow through on your financial objective.
You need to develop a system that helps you organize your money and always stay on top of everything. That system includes things such as following a spending plan and keeping track of where all your money goes. It includes things like setting up automatic savings deposits and automatic bill pay. The good news is building a solid money management system is a one-time activity. Once it’s built it will only require occasional adjustments. The more effort you put into building your system the less work it will take to manage your finances.
You must be willing to do the work. Lots of people would like to see their financial situation improve as long as it doesn’t come with too much work. Again, your ideal financial situation won’t happen overnight, but if you stick to your strategy long enough you will eventually knock out the things you want to accomplish. The important thing is to not attempt to skip over any of the necessary steps.
Additional Resources:
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Are you looking for a financial coach or financial planner to help you lay out a financial plan tailored just for you? I’m a Certified Financial Planner and Tax Professional with over 10 years of experience helping people put together easy to follow plans designed to get them where they desire to be. Schedule your free consultation today!