Your personal values will often dictate your spending decisions and money management.
Here’s an example of what I mean: I personally don’t like to eat fast food, but I do like to eat quality food. I’m unwilling to lower the quality of my food in order to save money. This is a value for me.
Some other examples: I love to travel, but I’m perfectly content to stay in cute boutique hotels versus splashing out on really high-end accommodations. I care about global warming, so I use a local car-share program instead of owning a car. It saves me thousands of dollars a year while allowing me to take an action that I view as helpful to the planet.
What are your values, and how do they impact your spending decisions? Use your values to decide if a purchase truly fits into your needs and non-negotiables, and you’ll end up saving money along the way.
The point is that if you write down the things you value in your financial and personal life and then compare that to what you’re spending money on, you may be motivated to make some positive changes in your life. But this process requires some discipline.
First, you have to think about what you value. And these values can be specific things, activities or lifestyle issues. And if you’re married, then you’re going to have to go through this process with your spouse. If it’s just your values, then you probably won’t get very far with your plans. But if you both agree to a core set of lifestyle, activity and financial values, then it becomes easier to work through a budget and allocate money to the stuff you value and reduce the money going to the stuff you don’t value.
Then the harder part is tracking your spending. You can’t really get a sense of what’s going on unless you can figure out where you’re spending all of your money. And you’ve probably got to do this for at least six to 12 months. Otherwise, you won’t have a good sense of your spending cycle.
For instance, during some months you go on a vacation and other months you don’t. If you only track expenses for three months and you didn’t go on a vacation during that period, you might not think you’re spending much on vacations. When in reality, you may be spending a lot more than you think, and a lot more than the “value” you might place on a fancy vacation.
Money can be emotional
The emotions connected to money and the decisions you make because of them may catch you off guard. There may be moments when you experience joy because of a generous raise, annoyance when you receive a surprise bill or frustration when trying to figure out the right decision around something complicated, like health insurance or student loans.
Sometimes my negative experiences with money make it difficult to enjoy my financial wins. I journal and focus on the positive, so that I don’t get stuck focusing on negative financial conversations in my head. It’s important to recognize and respect your emotions, but don’t let them take over your life.
Other people’s money may impact your spending
You may be wealthier than some of your friends, and sometimes you’ll want to say “yes” to dinners or vacations they can’t afford. On the other hand, you might be the broke friend and end up needing to borrow cash or decline invitations out.
There’s also another scenario to consider, which seems to crop up a lot for people in their early 20s: Your aging parents or relatives’ finances may affect your future money decisions.
In my case, my mom’s finances impacted my own from time to time, and I discovered that I wasn’t the only person having this experience. While I was happy to help my mom, I was still working on my own finances, and providing her support changed some of my personal and professional decisions. It’s important to be aware of these factors, and if possible, plan for them ahead of time.
Start investing ASAP
If your parents haven’t had the opportunity to set up retirement accounts for you when you were younger, that’s okay. I’m telling you right now to start focusing on investing. Even if you’re working with a student’s income.
Start by investing a small amount of money at a time. Your goal is to learn how to do two things: Create an investment habit and grow your portfolio as your income and confidence levels increase. Play around with online tools like this investment calculator to see how your investments could grow over time by investing early. Many financial planning apps are free.
What goes up can come down — and go back up again
When managing your personal finances, you’ll notice the following can and will happen. The stock market, at times, will go up or down at the drop of a hat. Or, interest rates will increase or decrease depending on what the Federal Reserve has observed or banking institutions have decreed based on a number of factors that are too many to list in this short post. Even the value of an item — such as gold, a car or a home — may go up or down unexpectedly.
Sometimes these changes are subtle; other times they are abrupt. Either way, they are an example of volatility and can feel really unnerving as you invest, save or just try to make simple decisions with your money. Learning to manage how you deal with volatility is an important skill to develop. My advice is to focus on strategies to help you manage financial volatility, beginning with a savings account to use for emergencies.
Once you’ve got a handle on your expenses, determine where your budget does not reflect your ambitions and aspirations. This will help you make necessary cutbacks and create more financial room for things, experiences and opportunities that will get you where you want to go.
Oftentimes, auditing our budgets can be a tough wake-up call. Moreover, when it’s time to make major financial decisions about what we spend, save and invest, the options, jargon and risks can be overwhelming. So, ease into the discomfort with a little research. Ask questions. Schedule time with experts. Read online blogs and books about personal and professional finances. Like any subject, financial literacy is something we learn—not something we’re born with.