There’s a lot of advice on how to do things in life. However, very little time is spent on “why” we should do things. Starting with “why” in personal finance is crucial because it helps you align your values with your financial goals, and create a plan that is both meaningful and motivating. By understanding your “why,” you’ll be more likely to make intentional decisions with your money and stay committed to your long-term objectives. Here are some steps to help you start with “why” in personal finance:
Identify your values
Your values are the principles and beliefs that are most important to you. They guide your decisions and behaviours and help you determine what matters most in life. Take some time to reflect on your values and write them down. Examples of values include security, freedom, creativity, generosity, and family. The idea is to make financial decisions that extol these values. It is very important to pass your financial decisions through the values, especially for the long-term impact. The thing to watch for here is where your behaviours conflict with your values.
Define your financial goals
Once you have identified your values, it’s time to set financial goals that align with them. Ask yourself what you want to achieve with your money, both in the short term and the long term. Some common financial goals include saving for retirement, paying off debt, building an emergency fund, or buying a house. We’ve spoken a lot about goals on this platform and one of the keys is to be as clear as possible when setting your goals. A house is a good goal. A 2-bedroom house in a middle-density suburb is a great goal because it is quantifiable.
Prioritise your goals
At some point in a personal finance discussion, you have to ruffle some feathers. Not all financial goals are created equal, so it’s important to prioritise them based on their importance to you. Unless you have a ridiculously high income you cannot do everything at once. In many cases when faced with this conflict people tend to choose what is more urgent rather than what is more important. Consider which goals will have the biggest impact on your life, and which ones are most aligned with your values. Make those the priority.
Create a plan
With your values and goals in mind, create a plan that outlines how you will achieve them. This could include creating a budget, automating your savings, investing in stocks or mutual funds, or paying off debt. Many people struggle with this because they feel that budgets and plans are created to restrict their options. The reality is that budgets and plans are created to realise your most important goals. Your plan should be specific, measurable, achievable, relevant, and time-bound.
Personal finance can be complex, so it’s important to educate yourself on topics such as investing, taxes, and debt management. There are many resources available, including books, blogs, podcasts, and online courses. Do not underestimate the impact of learning something new or relearning something you already know. Since personal finance is something you do daily it might make sense to learn something about it daily. By increasing your knowledge, you’ll be better equipped to make informed decisions and avoid costly mistakes.
Once you have a plan in place, it’s time to take action. This could mean opening an investment account, increasing your savings rate, paying off high-interest debt, or starting a side hustle to earn extra income. Remember to track your progress and celebrate your successes along the way. It’s important to include a monthly review of your income and expenditure to know where you stand and to make sure that you are behaving consistently with your “why”.
Starting with “why” in personal finance is a powerful way to create a plan that is both meaningful and motivating. It’s great to chase financial goals but your chances of success are drastically increased if you know why you are chasing the goals in the first place. By aligning your financial goals with your values, you’ll be more likely to stay committed to your objectives and achieve long-term financial success.
Global Money Week 2023: “plan your money, plant your future”.