The Money Skill You Must Master in 2022
Yoda was a Jedi Master who, despite his size, knew how to harness special powers called ‘The Force’.
Beyond enough for life's essentials, it really doesn't matter how much money you earn. Unless you can control your day to day spending, you will find it hard to build and maintain your financial wellbeing.
Most personal finance books, websites and videos do uses the word BUDGET to describe how to control day to day spending.
I never use the word budget. You me that sounds restrictive, hard work and, quite frankly, boring.
Instead, I use the term smart spending to describe the process of deciding where I want my money to go BEFORE I get paid or receive pension/rental/investment income.
Here’s how you can adopt a smart spending approach:
Get the truth of where your money goes right now. Most people have no idea of exactly how much they spend each month/year. The reality is always more than you think.,
Make sure your income meets your spending. If it doesn't, you have to reduce spending, increase income, or mix the two. You have to work with the money you have now. Not what you hope, expect or pray will come in in the future.
Don't get hung up on saving for the future if you struggle to balance income and expenditure. Learn the skills, routines and habits that will help you balance your inflows and outflows and take back day-to-day control over your money.
Make a commitment to reduce debt and/or save and/or invest any future pay rise or reduction in spending (like a loan finishing), because it’s easier than trying to cut current expenses.
Rather than thinking ‘I must save/invest, say, 10% of my income’. Instead think ‘I can live off of, say, 90% of my income’. It’s much more empowering to frame spending in terms of what you can spend now, rather than what you can’t (in the form of saving for the future).
Aim to make tiny improvements to your spending in the short-term and build on those over time, rather than making massive changes that you never keep up with.
You might need or want to increase your income, revise your investment strategy or improve your tax position. But before you do that, make sure that you have a firm handle on how you are spending your money on a day to day basis.
But remember, like any new skill, learning to control spending takes time and effort. Expect mistakes and failures and focus on making progress, not perfection.
This blog sets out my Money Milestones framework and Smart Spending System.
Make 2022 the year when you really get ahead with your finances. Make it the year when you become a smart spender.
Best wishes for the New Year.
Warmest regards
Jason
PS Google provides a simple, free spreadsheet that you might find helpful in tracking your income and spending. You can download it here.
PSS Do let me know how you are getting on. I love hearing my followers’ real stories.