4 Steps for Determining Your Financial Responsibilities
Too often, we spend money without thinking about whether or not the purchase is in line with our values or our goals. For many of us, buying something “just happens.” We have the money, and we spend it without really thinking about its impact beyond the momentary pleasure it brings.
However, in the long-term the habit of spending without thinking can impact your ability to reach your important goals. I had a wake-up call one day when I looked around and realized that all of my thoughtless purchases over the course of a few years added up to enough to go on a European vacation. I also calculated how much more I would have had in my retirement account if I had invested the money instead of spending it.
One of the best ways to avoid this type of regret is to determine your financial priorities, and then use those priorities to guide your spending decisions. Here’s how to figure out your financial priorities:
1. Identify Your Core Values
The first step is to ask yourself what you value. In your heart, what’s most important to you? Look for your core values — the things that you cherish. Be honest about what matters to you. Is it family? Faith? Helping others? Status? A desire for new experiences?
Really think about what matters in your life. There are no “wrong” answers. The idea is to get to know yourself so you understand what you should be spending your money on. Be real with yourself, and honestly evaluate what makes you “tick.” Once you know what matters in your life, you can start setting goals.
2. Figure Out What Activities or Things Match Your Values
Now that you understand your core values, it’s time to determine which activities and/or things match your values. If you like helping people, then it makes sense that activities that match your values include donating to charity, and volunteering your time with causes and organizations you believe in. If you enjoy spending time with your family, and those relationships are most important, then it might mean that you cut back on the time you spend with your friends, or at work.
Start cutting out activities in your life that don’t match your values, and stop buying things that don’t reflect what matters to you. Slowly start bringing what you do in line with your values.
3. Identify What it Takes, Resource-Wise, to Participate
Next, you need to figure out what resources you need in order to participate in your preferred activities or buy the things that matter to you. If status is important to you, and you want to buy a large home to reflect your status, you need to figure out how much money it takes in terms of a down payment, as well as a monthly mortgage payment.
From creating memories on a family vacation to saving up so that you can pay for health care costs in retirement, to being able to donate 15 percent of your income to charity, you need to know what it will take to participate in what’s important to you. Look at whether you need to cut back on some of your spending, earn more money, or do both. Figure out what it costs to do the things that are important to you, and record that information.
4. If It’s Not on the List, Don’t Spend the Money
Now that you have an idea of what’s important to you, and what it takes to make it happen, you can make a list of the most important items. Match that up with your required resources. In some cases, you might need to make more money to meet your goals. However, if the spending doesn’t help you achieve your goals, or your important lifestyle requirements, you can drop it off your list.
Going through this process can bring awareness to the way you spend your money. Once you start thinking in these terms, it’s pretty easy to see that an extra dinner out, or the purchase of a $100 pair of jeans just isn’t a priority anymore. You’ll be less likely to waste money, and more likely to spend it on the things that enrich your life now, and prepare your finances for your future.
Miranda Marquit is a freelance journalist specializing in topics related to personal finance, investing, and entrepreneurship. She writes regularly for a number of web sites, including AllBusiness, Huffington Post, and Wise Bread. Miranda’s work has been published at U.S. News & World Report, MSN Money, Fox Business, and Business Insider. Her work has been linked to from USA Today, the Washington Post, and the Wall Street Journal, and she has appeared on NPR Morning Edition and American Public Media’s Marketplace