Personal finance is one of the most critically important aspects of our lives, yet one that is the most overcomplicated, and made to feel like the most overwhelming.
Thankfully, we can all breathe a sigh of relief, because the fact of the matter is, money really isn’t as complicated as we’re made to believe. In fact, effective money management is often best done when it’s kept simple, and straightforward.
So, regardless of whether you fall in - the “spreadsheet-obsessed budgeter”, or the “digging my head in the sand” camp, here’s how you can get back to basics, and ultimately, get ahead with your personal finances.
Understand your money mindset
Money management begins with having the right mindset. Our experiences around money can be highly emotional, and even triggering. Perhaps asking or talking about money was considered tacky or taboo in your family? So, now you feel uncomfortable asking for help in this area, or communicating about it with your partner. Or, maybe you experienced a traumatic financial event as a child, like the loss of your family home, or severe cut-backs due to a parent losing, or even abusing money.
We all consciously and subconsciously carry our experiences of money around with us. They form the thought patterns, or narratives, of how we view money, including mindsets of scarcity or abundance. It’s important to do the deep, inner work of recognizing your money mindsets, and perhaps working with a money mindset expert to help you identify any triggers you may have, as well as practical ways to build a healthier relationship with money.
Save, spend, and give
That’s it! Just three simple categories to organize all your personal finances, regardless of how many zeros are on the back of that pay cheque.
Saving isn’t just about stashing money aside for your next iPhone, or your next beach vacation. It’s diligent, long-term planning for everything like a down-payment on a home, your “closer than you think” retirement, your children’s education funds, and yes, also your next beach vacation.
Saving has to be a financial priority money in your budget. If you’re debt-free, you should be saving around 15% of your monthly income into retirement investment funds. Another rule of thumb is not spending any more than 25-30% of your monthly income on housing - which should give you enough margin to prioritize retirement savings, and working towards a down-payment on a home, if you’re looking to purchase.
Life is about more than just work, work, work. A portion of your hard-earned money should be spent on things and experiences that bring you and your loved ones joy. The problem is when you’re spending, or expenses, exceed your income.
This is why having a budget is so critical - it’s a spending plan. If you know you’ll need about $100 per week for a date night with your partner, no problem! Just make sure you’ve allotted for that in your budget. It’s not about restricting yourself, but planning ahead of time.
It’s important to keep a healthy, balanced, and positive perspective of money - as a tool to effect change in your life and in the world. And, the best way to do that is by giving regularly to registered, reputable charities and non-profit organizations around the causes you care about. Whether that’s a religious organization, a hospital foundation, or a homeless shelter, donating money as part of your regular budget provides organizations with the consistent operating funds they need, and can also help to lower your tax bill in the Spring.
Consistency is critical
Lastly, regardless of whether you’re working towards a goal of paying off debt, saving for something special, or working towards creating enough financial margin to be more generous, the only way to reach those goals is to be consistent. And, consistency is only possible when you have a financial plan, and are working within the context of a budget.
Like any goal, start with the end in mind, and then break it down into smaller, bite-sized pieces. For example, if you’re looking to pay off $20,000 in student debt, break that goal down into a monthly amount dedicated to debt repayment. At that rate, how quickly would you be able to pay off the full amount? Now put that down as a line item in your monthly budget, and track your progress every month, quarter, and year. Using your budget to stay consistent will help you pay off that student loan in no time.