Money means something different to everyone. As we talked about last week, family is extremely important to some and thus money is a tool in which they use to the benefit of their family members. Some want to accumulate wealth so that they can leave a legacy for their future generations and provide a stepping off point for them. For others, the goal is to have enough to pay the bills and live without the stress of where next months rent is going to come from. The point is that everybody is different. Everyone has their own thoughts and ideas on how money should be used and how they are to be a steward over it. You cannot start financial planning without first knowing what money means to you. There are three important steps to go through in discovering what about money is important to you.
Step 1: Realizing that money is a tool
Often times when someone starts a career and starts to accumulate wealth they do so somewhat aimlessly. Cash might be accumulating, but it is just sitting in a bank making next to no interest. Money is spent here and there on a “want” rather than “need” basis without any real aim. It can be easy to take a materialistic mindset about money We can’t let ourselves be sucked in to accumulating money for money’s sake. A good way to break this mindset is to start a budget and start delegating how you are going to use this tool. Effective organization means that you end up using your money efficiently. Every dollar is accounted for and has a job even if that job is being used for savings in a bank account or retirement account. Money should be set aside for future goals as well which we will talk about later. This also means that no expense goes unaccounted for, even meaning that you plan for paying for things that aren’t necessities. By doing so you almost give yourself permission to spend money in a variety of different ways.
Step 2: Identifying your “Why?”
Everyone has a “why” for their money. There is a reason you are saving money and an underlying purpose for your money greater than just aiming for financial freedom. Like we mentioned earlier for many people family is their “why”. Leaving a legacy for current children and relatives and the opportunity to leave funds for the betterment of future generations is the goal. Who you are using your money for will determine the goals you have for that money.
Step 3: How money drives your goals
The things that are most important to you will help formulate the goals you have for the future. Money is often the tool that drives those goals. Buying a home, saving for kid’s education, creating a legacy. Deeper than just giving an inheritance, maybe you start a foundation for your future generations. Maybe you have heavy ties to a school institution or a church and you want to make sure that you serve them in as many ways as possible including financially. This is the part of the process where your savings strategy and your “why” meet. When you have a right mindset about money and a specific “why” statement, you are going to be ready to move forward with a true financial plan.
Reframing your mindset to think of money as a tool to accomplish your goals is important. Giving every dollar a job to do to give yourself the peace of mind to spend money is key. Articulating your “Why” and identifying what is most important to you, makes your goals real and solidifies your commitment to your plan later. Thanks for reading and have a great week!
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.