When facing life’s struggles, it is natural to look for a quick solution — the “one simple thing” that will solve the problem. The financial equivalent of the magic bullet tends to be the thought, “If I just make more money, my problems will be solved.” It is a fanciful notion; life is seldom that easy.
And yet, on that skeptical note, I’m setting out to tell you there really is one thing you can do that will have a profound impact on your financial life. Are you ready? It’s not magic. The one simple thing is to pay attention to your money. What the heck does that mean? And, how will that possibly make an impact?
Paying attention to your money is a three-step process. It involves focusing on three key areas: how you feel in situations involving money, your values and priorities, and where your money goes.
1. How You Feel
How do you feel and act in situations involving money? How do you make large purchases?
For example, do you agonize, shop endlessly, and find the decision-making difficult? There is valuable information in those feelings. Perhaps you don’t trust yourself to make a good choice. Maybe you’re so driven to save a few dollars that you spend more time than it’s worth.
How do you feel afterward? Joy, relief, and satisfaction with the outcome? Or doubts about whether you did the right thing? Our emotions around money are easily triggered. When we become aware of these triggers, we also become aware of our unconscious beliefs. As you pay more attention here, you will catch yourself in hazards like spending to feel better, and in the process you’ll better understand your relationship with money.
2. Values and Priorities
You may have a good idea of what is generally important to you, but when it comes to money, it helps to articulate clear priorities. Look at some of the major areas where you spend: a nice house or apartment, an expensive car, travel, clothing, health, self-improvement/education, retirement, giving to charity, etc. Make a list of the places your money goes and then rank them in order of importance. Which are critical to your enjoyment and appreciation of life? Which do you value most? What items are essential, and which ones can you live without?
Paying attention to the differences between needs and wants, as well as being in touch with your values and priorities, are steps to making conscious money choices.
3. Where Your Money Goes
Tracking your spending is the third component of paying attention. Would you believe that just one-third of Americans prepare a household budget? Budgeting is about knowing where your money is going. Using the results from your priorities exercise, find the nonessential areas where you spend money. Tracking your spending lets you know your limits and stick to them.
Your money should go toward what matters most to you. This is now possible since you’ve outlined your values and ranked your money habits. When you establish goals — like saving for a trip to Europe or fixing up an old bathroom — it is great to see savings accumulate toward them.
Tying It All Together
Paying attention — to feelings, values, priorities, and expenditures — is a powerful approach to money. It’s a process that leads to conscious choices, allowing you to allocate precious dollars to what matters most. Ultimately, it actually makes decisions easier: Weekend getaway or save the money for the annual trip to Disneyland? There are always trade-offs, and when we have information at our fingertips, we have the power to take charge of our financial lives in a meaningful way.
Jeff Stoffer is a member of the DailyWorth Connect program. Read more about the program here.