The cost of living is ever increasing due to rising inflation rates and a pandemic-caused recession. This has caused more and more people to cover their immediate needs by taking out loans. While borrowing money is not bad if you can repay on time, in most cases, people are instead crippled with overwhelming debt, and what little they earn is spent on repaying debts instead of financially managing their daily needs.
The thing about debt is that it sinks individuals further into a financial deficit. Instead of being able to improve their lives and progress toward financial stability, most people with poor debt management and money habits end up biting off more than they can chew.
Therefore, it is necessary to improve individuals’ understanding of how money works and their relationship to money by identifying lousy spending habits and improving their financial literacy.
Let’s get started.
- Change your perception of money. People spend money every day without truly understanding the nature of money. In essence, money is simply a value that we exchange for other commodities that equate to that specific value. While money has simply taken over the centuries-old barter system, it does not take away the fact that, up to this day, we are simply exchanging values.
And how do we obtain money? It can be through business or employment. In short, we obtain money by providing our relevant skills, strengths, abilities, and time.
Therefore, we are paid a specific amount of value for the corresponding value we provide. If you offer little value, you get paid little in value, and therefore, you would only be able to afford things of little value.
How do all these things tie up? For starters, you must live well within your means. If your means exceed your income, you must increase the value you can provide to gain the necessary financial resources for your daily life. It’s all about exploring and increasing your financial value.
- Analyze your current financial situation and spending habits. Make a list of your income, expenses, debts, and savings. This can be a terrifying exercise if you’re already worried about your finances. Unfortunately, avoiding it will not make it disappear and may worsen your situation. Use free financial wellness tools to get a clear picture of your financial status. Check online lending apps if this is for you. Having a bird’s-eye view can help you identify areas for improvement and devise a strategy for moving forward.
- Prioritize spending that will help you meet your goals. Examine your expenses using what you’ve learned about your financial habits. Expenses that do not align with your goals should be eliminated.
For example, if you want to pay off your loans faster, see if you can reduce your spending on things like cable TV, subscriptions, or restaurants and bars to put more money toward debt repayment. If you have credit card debt, transfer it to a card with a lower interest rate. The goal is to spend your money on the most important things to you. - Create a budget and plan and stick to it. Another step you must take is to create a spending plan that aligns with your needs. Again, this is easier if you understand the why behind your spending and which of it can be narrowed down. A spending plan allows you to prioritize your spending based on your values and long-term goals, ensuring that you cover the most important items first.
Financial self-care is a continuous process. Make it a habit and set aside time to work on it each week. As with exercise, the more you practice, the easier it becomes!
- Invest in your future. There are several ways we can significantly contribute to a better future for our family. Some invest in various types of insurance, while others diligently study real estate trends to make an informed decision once they’re ready to venture into real estate investment.
The Bottom Line
It is imperative to know yourself well to improve your relationship with money—your perception of money, spending goals and habits, and ideal investment options. All these factors have an impact on how you handle money.