Does your list of goals and aspirations include items like “better finances” or “financial freedom”? For many of us, hearing words like “finances” and “money” cause stress and anxiety. We’d feel so overwhelmed that we end up ignoring any money-related thoughts or topics altogether. It is obvious that money alone doesn’t solve all our problems. For example, most of us won’t exchange our health, happiness, and freedom with money. At the same time, as humans, most of us envision a prosperous and convenient lifestyle; one that is free from worrying about spending money on things and experiences that we value and enjoy.
Use the following tips to examine your saving and spending habits, and set simple financial goals for a happies and more mindful life.
1. Create a Mindset of Abundance
What is the first thing that comes to mind when you hear money? When it comes to your perception of money and personal finances, where do you stand on the spectrum between scarcity and abundance?
Mindset issues can prevent you from going to the next level in your professional and personal life and reach your full potential. In personal finance, a scarce mindset toward money can create barriers to abundance. For example, if you spent a period of time worrying that you didn’t have enough money for food or shelter, it might be challenging to shift your mindset back to a state of abundance. It’s worth noting that a lot of money mindset issues are rooted in our childhood. These childhood issues are ingrained in our brain and usually the hardest ones to overcome. Stopping and reflecting on the situation rather than just reacting can be a very effective approach. When you give awareness to the root cause of those issues, you’ll be better able to identify, monitor and regulate your response and mindset.
Create a list of all the positives and negatives you can think of in terms of money. Bring awareness to the dialogue in your head and decide which ones you want to keep and which ones you want to change?
2. Create a List of Your Financial Goals
It’s obvious that purposeful goal setting helps achieve success in personal and professional endeavors. By defining your financial goals and taking actionable steps, you’ll be better able to focus your efforts and resources to achieve your goals. Here are some examples of financial goals:
- A status of overall financial freedom
- Reaching financial independence
- Having enough money to retire
- Pursuing old dreams and aspirations
Make sure to periodically revisit your goals (especially after major life events like having kids, getting married or retiring) and make adjustments as needed.
3. Design a Framework for How You Spend Your Money
Having a financial framework in place is an excellent way to spend money with intention, so you can enjoy life to the highest extent possible.
To design a system, you need to understand the basics of money. People who know how to use money effectively, enjoy incredible benefits beyond the obvious personal gains.
- Review your inflows and outflows. Review your outflows against the healthy spending pyramid and the 50-30-20 rule: 50% of your income (after taxes) should go toward your needs, 30% toward wants, and 20% toward savings. Your savings should include a minimum of $2,000 in emergency fund for unforeseen expenses like a surprise plumbing repair.
- Make a list of your assets and liabilities (things you owe). Subtract your liabilities from your assets – that’s your net worth. If your net worth is consistently going down, you may want to reevaluate your investments. A simple way to reduce your liabilities is to make every effort to pay down your credit card debt in three to five years (depending on the interest rate).
- Check your credit score: There are online resources available through which you can check your credit score.
4. Stop the Comparison Game
We normally compare our insides to other peoples’ outsides. Social media just amplifies this comparison game further. Many people think their friends are wealthier, because they drive a more expensive car or own a bigger house. Do not be fooled by displays of wealth: almost anyone can go out and purchase expensive things on credit card or debt. Comparing can be a dangerous game, shifting us to a place where we won’t be able to move forward with our biggest financial goals. We’ll either become financially stagnant or take big risks in an attempt to hit the “perceived success” of others quickly.
5. Design Your Life Around Meaning and Purpose, Not Money and Jobs
Even though some of us like our jobs, a few of us can say with confidence that our work-life is perfect. Today, more than any other time in history, we need to focus on meaning and purpose in our lives. Finding purpose is a powerful quality that requires us to have financial integrity, i.e. learning the true impact of our earnings and spendings on us, people around us and our environment:
- Does money really make you happy in life?
- What values will you never compromise?
- If you had $1 million, how would you spend your time?
In short, do yourself a favor and think what makes “you” a truly happy person.
6. Be Adaptable
40% of the retired population lives solely on social security, because they don’t have a pension plan or saving.
But the good news is that things are changing. There is a growing number of people who don’t work traditional jobs. They move from one interesting project to the next exciting step. Whether you’re a student in college, mid-career worker or soon-to-be retiree, it is critical that you develop a range of skills and income sources in different areas. Things are shifting and to navigate the changing landscape of work, we need to develop skills beyond our daily jobs to make us more adaptable and valuable.
7. Don’t Buy Your Way Out of Life Challenges. Do the Work and Be Persistent
Stop buying your way out of life challenges. Instead, use those challenges as opportunities to learn and grow. Some challenges in life require more than financial resources to overcome. For example, purchasing a premium gym membership or considering surgery to address weight issues is not going to help you get fit by itself. A more effective approach would be to gradually incorporate healthy eating and exercise to your routine. This method takes more personal effort and determination, but leads to more sustainable health improvements.
Enjoy the journey and remember consistency is key when it comes to achieving your financial goals. If you need to take a moment to pause and step away, that’s ok too, but don’t run away.
Investing in your financial future and long-term happiness must be in alignment, so you can live a more fulfilling life. They both require thoughtful planning and commitment. They are also both ongoing processes and need to be modified and adjusted as we evolve through different stages of our life and career.