Your money philosophy and how you think about your finances make a big difference in the decisions you make.
Whether you’re just starting your financial journey or you’re well into it, it’s a good idea to take a step back and define that philosophy.
Money is a tool
Sure, there are monetary goals you would like to achieve. For example, $1 million nest egg has long been touted as the number you need to hit for a comfortable retirement, but hitting, somewhat, arbitrary numbers aren’t everything.
Money is a tool. If used properly, you really can achieve financial success. Taking the money you’ve saved and putting it to work for you is a very simple, yet effective way to use it.
Another monetary tool is a credit card. Credit cards offer a variety of reward programs, like travel miles, cashback, among others. Additionally, it enables you to build and strengthen your credit report.
It is important, however, that if you are using a credit card, you must do so responsibly. Accumulating credit card debt can really set you back, financially.
Related reading: A Deep Dive Into Credit Cards
Focus on the solution, not the problem
Often times, we focus too much on the issues with our finances. I have too much debt, I have too little saved for retirement, or my expenses are killing my ability to save.
Instead of focusing on the problem, focus on what can be done to fix it.
If you have too much debt, develop a plan to pay it down. If your retirement savings are low, figure out how you can increase your savings rate. Expenses hurting your ability to save, cut your expenses.
“Whatever the problem, be part of the solution. Don’t just sit around raising questions and pointing out obstacles.” Tina Fey
Related reading: How To Cut Spending
Money using emotional bandwidth
It is true that money is relatively important. I say relatively to try and redirect to my first point when I mentioned that money is to be used as a tool.
It affords you food to eat, clothes to wear, and a place to live, among other things. If your basic needs are met and future goals are being worked towards, you have to try and stop worrying that you don’t have enough.
This is extremely challenging to do because we, as a society, are so fixated on money and material items that money can buy. It also doesn’t help that comparing ourselves to others is essentially baked into our DNA.
Believe me, I know that learning to stop worrying is incredibly difficult, but retraining your brain to view your finances differently can be extremely liberating.
Related reading: The Psychology Of Money
To be a successful investor or to be able to financially plan effectively, you have to think long term.
The market is going to have its ups and downs. As an investor, it’s important to ride out those down periods and continue to invest. If you have 15+ years until you need that money, you should be able to recoup your losses.
With regard to saving, I typically take the “bucket” approach. I have three buckets, short-term, medium-term, and long-term. Be advised: the following is how I define these time horizons.
- The short-term bucket is for items under 5 years away. For example, when I want certain debts paid off or a down payment for a house.
- Medium-term is anything 5-15 years away. The main one in this category is my son’s college savings.
- Long-term is retirement savings, exclusively.
Related reading: How To Make Long-Term Investing Decisions
Buying experiences versus buying stuff
Money to a certain extent can buy happiness. As long as it’s being spent on experiences rather than stuff.
Memories with family and friends, visiting different destinations and attractions are the things we’ll cherish most.
Stuff breaks and toys are outgrown. What people won’t forget, however, is the time you spent with them.
Make that a priority. I know, as a fairly new parent (my son is almost 2), that I am constantly aware of how finite time is and that I need to make the most of those moments I spend with him.
The way you think about money pulls weight in how you use it. When creating a financial plan, I would prioritize figuring that out. How you think can lead to how you act.