Make This Financial Decision Before You “spend Less” or “save More”
A new year brings new financial resolutions, and most of us set the same vague goals: “spend less” or “save more.” And of course, these are wonderful goals. But before you try to cut your spending or increase your savings, it’s important to take a step back and make another financial decision first: defining your relationship with money. It sounds simple, but stay with me here—this decision is necessary to ensure that all your other decisions remain true.
Define your money mindset
Understanding what drives your financial behavior—be it security, status, freedom, guilt, etc.—is key to making changes last beyond the first week of January. As I said earlier , we all have a money story, and it’s never as simple as ” I’m bad with money .” If you don’t address the root causes, you’ll find it difficult to maintain new habits.
Identifying your money mindset also reveals conflicts and preferences. You may value both savings and travel expenses, or want to reduce debt while enjoying the perks of the lifestyle. Identifying your internal conflicts and priorities allows you to set consistent goals. Identifying your money mindset also helps increase your financial self-awareness, since many of us have emotional relationships with money stemming from childhood or social pressure. Increasing awareness of your own money history will allow you to separate feelings from smart money management. You can also connect your finances to your personal values to find motivation during difficult times. Focusing only on numerical goals may work in the short term, but if they lack deeper meaning, you’ll likely burn out.
How to Determine Your Money Mindset
Here are some specific steps you can take to define your money mindset:
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Track your spending to learn habits, beliefs, and where your money is going.
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Have an open discussion about your feelings about money with a trusted friend, partner, or mentor.
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A journal about your emotions and relationships related to money.
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Review key money memories and events in your life.
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Identify times when you made money decisions based on values.
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Think about how you would spend money if you suddenly had more or less.
The New Year offers a fresh start to new financial habits, but real change requires self-reflection. Before you simply try to spend less or save more this year, you’ll be glad if you examined your relationship with money first. You’ll gain powerful insight to make targeted, positive changes that align with what matters most to you and that will lead to more meaningful and lasting changes in your finances.