I received an inquiry from a Facebook follower asking me to provide her with a short list of actions she could take to improve the financial security of her family. She said she is very pressed for time and just needed a few things she could regularly do to make her money life better. This post lays out the six building blocks I suggested she pursue. I hope this will help other readers.
Block 1 – Determine where you stand. You need to determine where you are financially. Take some time to go through your records and make necessary phone calls or emails to get up to date balances and information about your savings, regular bills, debts and employee benefits. This is really important as you to begin to map out your journey to financial security as you need to know where you are starting from. This is an action we should all take at least annually.
Block 2 – Revisit your financial values and timeframes. The root cause of why there is so much variety in how people handle (or don't handle) their money is because we all have different matters that are important to us. What we value in life influences the kinds of goals we set for ourselves, and our individual goals will determine the actions we take to reach them. If you can understand what drives your decisions, you can better manage your financial affairs and get the results you desire. Financial values are a person's or household's principles or standards of behavior when it comes to money. They are the judgments about the importance of money.
Take 30 minutes and talk with your household about the key matters that you value most in life — what brings you the most joy, what you're striving to achieve and how you how you want to spend your non-work-related time. Make a list of them and identify how money relates to supporting those values and making them happen. Reducing your financial values into writing makes it clear what you are looking to do with money and how you need to use it as a tool in your life to achieve what you want. A key part of agreeing on your values and setting goals is to give each goal a timeframe for completion. For example, you will have a fully funded emergency fund within 9 months of your start date.
I have learned that being as specific as possible with your values, goals and timeframes, leads to more success. As I think about this process, I always remember the saying, if you don't know where you are going, you'll end up someplace else.
Check out: Is it Time to Rethink Your Financial Values?
Block 3 – Continually improve your financial knowledge. Most Americans are not financially literate. Most have received little to no formal education and training in personal finance. This lack of money knowledge and overall financial literacy can be financially and psychologically costly.
In a February 21, 2019 article in the TheStreet.com written by Brian O’Connell, Americans are "lacking" financial literacy and that not having a grip on one's personal finances can lead to big problems for Americans. His article was based on a recent survey from the National Financial Educator Council (NFEC). Out of 1,500 U.S. adults NFEC surveyed, respondents said that, on average, they lost $1,230 dollars in 2018 by not properly understanding basic household finance issues - that's about the monthly mortgage on a modest home or over two and one-half average car loan payments. Almost 20% reported not understanding their finances cost them $2,500, based on calculations provided by the NFEC. Altogether, a lack of financial literacy cost Americans a total of $295 billion in 2018.
Financial literacy is defined as being educated about money and finance, with a special focus on an individual's personal finances. Being financially literate enables you to make smarter money management decisions that lead directly to a financially secure future, one that protects the assets built by you and your loved ones. Categories that typically come into play with financial literacy are everyday financial issues like budgeting, spending, debt, taxes, retirement savings, college savings, mortgage management, and tax and estate planning.
Block 4 - Focus your money mindset. Have you ever tried to lose weight? Run a faster 5K? The same effort you have put in place to do these things is what is needed to reach your money goals. Success with money does not just happen — it needs to be focused upon and worked.
A money mindset is your personal set of beliefs about money and knowledge about how it works in your life. It is the sum total of our life experiences about what you have learned about money directly and through the key influencers in your life. It drives your day-to-day decisions about money. Your money mindset impacts whether you financially succeed or fail.
When it comes to money, we are what we think. Having a positive money mindset and making it a priority usually results in meeting or exceeding the goals you set for yourself. You can break the negative cycle with money and move to a place of financial security. The first step is to become aware of how you learned what you have about money, let’s call that point A. The second step is to determine what you want from money in your current life, let’s call that point B. Getting from A to B is what you need to do. This journey is absolutely achievable if you set your mind to it and lay out the steps needed to reach your goal. I believe a series of small steps is best in making a change in our life.
Block 5 – Develop your new cash plan. Once you have taken an inventory of all your cash income, expenses and debts; revisited your money values; focused your money mindset; and made a commitment to improve your financial knowledge you then need to put your words into action by developing or revising your cash plan or budget. The plan should simply show you how much excess cash you are generating each month or how much of a deficit you have. This cash plan should make you aware of what actions you need to take to achieve your goals.
Check out: How a Cash Budget Changed My Money Mindset
Block 6 – Work to improve your money habits. After putting in place the first five building blocks you need to continually work on improving your money habits. Here is a list of the top 10 good money habits I believe most people should develop. Remember a habit is a way of behaving that is repeated so often it no longer involves conscious thought. Developing good financial habits and overcoming bad financial habits are essential to success in the FinancialVerse.
10 Good Financial Habits
Here are some examples of good money habits that you can develop with planning and focus:
1. Develop a Personal Money Mindset
2. Develop Reflective Practices
3. Live Within Your Means
4. Work to Save At Least 10% of Your Pre-tax Income
5. Never Stop learning About Money
6. Use Technology to Automate Your Money
7. Make Savings a Priority
8. Monitor Your Credit Scores
9. Look to Save on Recurring Purchases
10. Celebrate and Spoil Yourself for Reaching a Goal or Achieving A Milestone
Developing good financial habits takes study and practice. Remember a habit is defined as a way of behaving that is repeated so often it no longer involves conscious thought. Many people manage their money with four or five key habits. This discipline has led them to financial success and security. In the FinancialVerse practice makes perfect. Once you develop the proper mindset and improve your financial knowledge you can develop the money habits you need for success.
Check out 10 Good Money Habits: Part 1 and Part 2
Summary
The above are the six most simple building block actions you can take to improve your money life and financial security. Like any other improvement initiative you undertake in life you will only get out of it what you put into it. In this case, your investment is your time and attention. If you make managing your financial affairs a priority you will likely improve your financial outcomes and begin hitting the goals you establish for yourself and your household. If, on the other hand, you do not invest a reasonable amount of time the likelihood is you will continue to wander through the FinancialVerse without success you desire.
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Thanks again for your interest in improving your financial knowledge!
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