1. Determine your financial goals
Want to stop living paycheck to paycheck? Do you want to be debt-free by the age of 40? Do you want to stop renting and become a homeowner? When you have a clear goal, you’ll probably think twice before spending your money mindlessly.
Sit down with a pen and paper and imagine what your life will look like in one year, five years, and ten years. Who are you? Where do you live? What kind of lifestyle do you want to live?
Maybe you realize that you want a comfortable home for your children to grow up in, or that you want to go back to school and change careers. Whatever path you want to take, you’ll need some financial goals to get there.
For each financial goal, figure out how much money you’ll need and the date you’ll need it by then. Your goals will shape the direction in which you move.
How to set smart financial goals
2. Define your values
A new wardrobe, fancy dinners out, an exotic trip, a world-class gym with training classes and a sauna – in a world of mass consumption where bigger is better, we are overwhelmed with options to spend our money. A budget will allow you to have a lot of what you want, there is no way to ever have everything you want. So, how do you decide what you want to spend your money on?
Each person will have a different set of things in their life that they cherish, so your next step is to decide what you want to prioritize.
Ask yourself:
- What do I really like to do?
- What more do I want?
- What do I want to be known for?
Some people value travel and experiences more than possessions, while others may want convenience, such as meal delivery or driving to work instead of taking the bus. Others want to improve their health through yoga classes or have a passion for their hobbies, such as gardening or trying new restaurants.
Identify what you value, what enriches your life, and what you can’t live without – these areas should be where you place your discretionary spending.
Keep your values close to you – Every time you are tempted to spend money on something random, remind yourself that unplanned purchases are taking you away from your goals and the things you love to do.
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