Whether you’re 18 years old or 80, we can all stand to learn important lessons about our finances. While financial decisions make a big part of adulthood, it’s not something that’s always taught formally. Many of us figure out our finances on our own, and the habits we set can impact our long term outlook.
If you’re worried about your own financial literacy and decision making, you’re not alone. According to recent surveys, only 50% of Australian men could answer 5 basic financial questions. Amongst women, only 35% could answer correctly or felt confident in their answers. While this might sound intimidating, it’s possible to turn the story around. In this guide, we’ll share how to make better financial decisions no matter your experience level.
Understand Your Values
First, you need to understand your values when it comes to money and your priorities. While there is a lot of great financial advice out there, it’s not one-size-fits-all. The wrong advice could actually set you back in your goals. Instead, start with your values.
What’s important to you? What really matters? Maybe you’re trying to live debt-free or save money to afford a house. When you align your spending with what’s important to you, it’s much easier to stay motivated.
You don’t always need to make a ‘logical’ choice regarding your money. For example, if you’re saving for a high-value holiday, it’s okay to splurge a bit on extras that are meaningful to you. All of these things exist within healthy financial decision making.
Create a Reasonable Budget
Once you’ve identified your values, your next step is to create a reasonable budget. This is at the foundation of all financial decision making. When you’re in tune with your budget, you’re never wondering if you can afford something or where you’re at in your debt journey.
Believe it or not, many people don’t truly know just how much money is coming in and out of their accounts each month. To create a reasonable budget, follow the steps below:
- Track: To begin, track how much you’re spending and earning in a given month. You can use a money tracking app, review bank statements, or work with our experts.
- List: From there, list all monthly expenses (rent, utilities, food, etc.) to see just how much you need to spend before unexpected purchases.
- Cut back: Identify any places you can cut back. You might notice you’re spending more than you think on meals out, for example. This is a great time to set limits and determine where you can save.
- Implement: Lastly, create a plan to implement your budget. Allocate funds for miscellaneous expenses, and start saving for a rainy day.
Remember, your budget is only useful if it’s reasonable. Many people make the mistake of setting themselves up for failure by creating a budget that doesn’t leave a little wiggle room. It’s okay to buy things you really need, like new clothes for work or a special meal every once in a while. Having the extra room in your budget for these things keeps your goals on track.
Learn to Spend Mindfully
In this day and age, it’s easier to part with your money than ever before. Whether you’re swiping your credit card or parting with funds digitally online, you might not even notice how much you’re spending. When you want to make better financial decisions, you need to learn to spend mindfully.
First, you should always have room in your budget to spend on “needs.” A need is anything necessary to survive like food, shelter, transportation, healthcare, reasonable clothing, and so on. A want is something you would like to have, but you don’t need it to survive or work.
Sometimes, the line between needs and wants is blurred. Consider what you would do if your car broke down and you needed a new one. It’s completely reasonable to buy a new car, especially if you need one for work. This could be considered a need. However, a want would be splurging on a luxury SUV that isn’t necessarily as practical. Your needs should come first, and always ask yourself whether you’re splurging on an unnecessary want.
Start New Financial Habits Today
Ultimately, it’s never too late to turn your financial wellness around. If you’re struggling to make smart financial decisions, you’re far from alone. This is something many people struggle with at different stages of their lives. It’s nothing to be ashamed of, but you should take action to create new financial habits. By following the tips above, you create a strong foundation for your financial future.
Not sure where to begin? The experts at Debt Busters are here to help. Contact a member of our team today on 1300 368 322 to discuss your options. Whether you’re interested in saving for the future, planning your retirement fund, or just making a stronger budget, we’re here to help. Congratulations on taking this important next step towards a brighter tomorrow!