Finance expert Davinia Tomlinson shares five easy steps to help you manage your money
CREDIT: This is an edited version of an article that originally appeared on Happiful
If you’re keen to get a handle on your finances, a great first step is to learn more about managing money so that you can approach it in a simple and strategic way. Whether you’re just starting out, or looking to improve your existing financial habits, understanding the basics of positive money management can help you feel reassured and put you back in the driving seat.
Learn to control your money mindset
Remember, you control your money, your money doesn’t control you. This is the key to transforming your relationship with money and establishing solid financial foundations that form the basis for how you live your life. Cultivating a healthy money mindset means that, in time, you will be making powerful financial decisions on autopilot. Start by keeping a daily money planner for a month and write down what you spend, when, why and with whom.
Next, reflect on how money makes you feel. Which words or thoughts come up consistently when you think about money and, most importantly, why? Do you feel excited? In control? Anxious? Whatever it is, write it down.
Lastly, look for patterns or clues in your behaviour. What do you notice about your money behaviour that makes you proud? Do certain people impact you positively or negatively? Is there a spike in spending after bad news? The only way to make a positive and lasting change is to know your starting point, identify where you’d like to get to and take steps that you can build on to achieve your target.
Understand the difference between what you earn and what you keep
Being financially free is about understanding the difference between what you earn and what you keep. Keep track of your expenses and make sure you’re spending less than you’re earning; this will help you make informed decisions about what to do with any disposable income, including how much you can afford to save and invest for the future. Most people who achieve financial success aren’t simply those who earn lots of money – the most financially savvy are focused as much on what they keep as on what they earn.
Deferred gratification
It’s easy to get caught up in the here and now and spend money on things we want but don’t need. While there’s nothing wrong with the occasional burst of spontaneity when it comes to our spending, if this becomes our regular mode it could lead to financial struggles later down the line. Instead, reflect on what is driving your financial behaviour and how it makes you feel.
Are you being influenced by external influences, such as friends or social media, to make purchases you might otherwise not have made? Will your decisions lead to lasting satisfaction or fleeting joy in that moment? Again, there is absolutely still room for immediate gratification in our lives and that instant dopamine hit that might come from an unplanned purchase – but also know that when we diligently stash our money away, week after week, month after month, the impact on our overall sense of well-being and satisfaction over the long term is incalculable.
Find your money tribe
Unsurprisingly, the people closest to us will have a significant impact on our relationship with money, both positively and negatively. If you’re attempting to optimise or transform your financial behaviour, then a good place to look is in your interactions with close friends and family.
How openly do you discuss money, and what sorts of things come up? Do your friends encourage you and cheer you on to financial success, remind you to command your true value in salary negotiations, and help you stay committed to your saving and investment plans? Or do they tempt you into blowing the budget whenever you’re out together, discourage you from pursuing your ambitions and generally pour cold water on your money-saving efforts? If you’ve yet to broach the subject of money in your friendship group, perhaps you can lead the way.
Set a money date with your friends to talk about all things money and hold one another to account – this might include talking about how you’re getting on with your savings, checking in on your goals, discussing the latest money apps and more. While it may seem awkward at first, talking about money in the safety of people you know and trust is a power move.
Automation
Don’t rely on memory, or adding it to your to-do list, to stick to your saving plan. Identify a realistic amount of money you can consistently put away, however big or small, choose a savings or investment provider you’re comfortable with and contribute to it regularly via standing order. Don’t wait until you get a pay rise or start a new job; instead start small but start early. The power of compounding over the long term means that you will soon start generating returns which could help you secure your financial future.
Don’t be overwhelmed by any of these tips. Take the path of least resistance, pick the one that resonates most and build up slowly. Remember to:
Focus on cultivating a positive money mindset.
Stay in control of your money by setting a realistic budget you can stick to.
Practise deferred gratification.
Find your money tribe to help support you on your journey.
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