Personal finance is hard. There are numerous different areas to think about and manage, and it can be easy to throw it in the ‘too hard basket’. But if you break it down into easy steps, not only managing but growing your personal finances with success can be easier than you think.
The best way to approach it is to think of your personal finance like a New Year’s resolution. It is all about setting a goal and then creating the right habits to achieve it. If you do not have the right tools and knowledge, you will not be able to achieve your new resolution and be caught in a cycle where your finances stay mismanaged without growth (think gym membership in January and the fall off rate in February).
So how can we take the first step on the right path to success? Here are three ways to start thinking about your finances differently:
Do not be afraid to seek out help and guidance
When trying to reach your goals, do not be afraid to get some coaching along the way. A wealth and finance coach can help you make a jump start on achieving your financial goals and provide you with the right advice that is personalised to your current financial situation. They can also act as an accountability confidant to make sure you stay on the right track along the way and make the path to success less overwhelming. If your budget allows you to hire a Finance Coach, jump right in and also stick with them for the long term to help build a more complex wealth management and growth strategy.
But do not fall into a trap thinking a finance coach will do all the work for you. Take the opportunity to absorb as much information as you can and learn what tools they are using to help manage your finances. This will help build your knowledge and give you the confidence to continue to explore other areas of wealth building while watching your portfolio grow.
Write out your goals and target one thing at a time
If you are determined on managing your own financial affairs, do not overwhelm yourself by setting complex goals that are not achievable. So, start small with a list of four or five things you want to achieve and focus on those until they are complete, these goals could be further broken down into short (1-year), medium (3-year) and long-term (5-years+) time frames. This approach will give you a sense of achievement and help keep you focussed when you get distracted with life.
And do not be discouraged about the slow progress when it comes to your finances. Taking one step at a time to achieve your goals is better than no progress at all, and remember it’s all about setting better financial habits that will help grow your future wealth and set you up for the future.
Do not fall into the trap of trying to keep up with the neighbour you think has it all
One area of your finances that can really hold you back from success is lifestyle creep. Naturally when we progress in our careers/businesses, we earn more which can give us that sub-conscious boost to start spending more, causing our lifestyle spending to inflate. But earning more money does not equal automatic financial success. Lifestyle inflation can be damaging to our long-term financial health as it limits the ability to save now and have less for retirement and achieving other targets like property purchases, children’s education etc.
As you progress in your professional careers, do not lose sight of your spending habits, and try to keep up with the Joneses, especially if your friends and peers have high spending lifestyles. New cars, expensive holidays and purchasing ‘more stuff’ can add up over many years, do not feel pressured to do the same. Despite their spending habits, it could be serviced by credit cards and loans, meaning their long-term wealth is severely impacted by their current purchases. So, take the time out to regularly check how your finances and monthly spending is going and how you can continue to grow your wealth without blowing out your spending habits on lifestyle choices. Regular finance reviews are crucial for long term successes, especially when your income changes over time.
Simply by reading this article and making some choices, you will be better off than the vast majority of your neighbours.
Written by Tomas O’Driscoll CFP®
and Life and Money Ireland