Five Steps to a Healthy Relationship with Your Personal Finances
We may not consciously think about it, but how we handle our finances from day to day is based on our deeply held beliefs about money. By acknowledging our personal habits, we can open up about our beliefs, our fears, and our dreams. This is one way to pave the road to having a healthy relationship with money.
In the physical sense, women have definedheal being healthy as not only free from illness, but as “having spiritual and emotional wellbeing” and “being physically fit and well rested.”¹ To achieve this, we use an exercise schedule and meal plan (along with sleep) that are intended to make us feel strong and fit. In the financial context, we could describe “healthy” as being able to talk about personal finance with those we trust and make decisions with confidence.
Here are five key steps to pursuing a healthy relationship with your personal finances.
#1: Describe your current method of handling bills and accounts in general (and honest) terms.
For example, who takes responsibility for the monthly tasks? How many different accounts are there and what is their purpose? How much time is spent looking at expenses? A description may look like this: “I manage the checking, savings, and my 401(k) at work. My husband manages the other investments. We have an accountant who takes care of the taxes. We generally handle everything online or over the phone with customer service, whenever we have time. We have a folder with some statements, but not all the account details are in one place. We mostly agree about spending, but not all the time.”
#2: Outline your existing responsibilities.
There are defining moments during adulthood that outline your financial responsibilities. New jobs, marriage, buying a house and cars, having children, budgeting for their future, and saving for retirement are examples of milestones that require financial responsibility. Being able to address each new milestone and assess where financial gaps exist will allow you to better create a wish list with a timeline for your expenses.
Each phase carries its own new areas of responsibility. And, at any point, one of life’s critical events can drastically change the scope of your responsibilities. A new job means making decisions about retirement savings and benefits offered. A marriage or new baby raises many questions! This is your opportunity to find any gaps between where you are in life and what you need to address.
#3: Create a wish list with a timeline.
Do you know when you can financially act on one of your dreams? It is difficult for people to plan in their heads for significant financial events that are more than a year away. Simply writing down a need or wish and including when you want it to happen is a powerful technique.
Writing a timeline of events and expenses naturally leads to thinking about the next step. For example, “We will move and need to have $50,000 for a down payment by next August. At the same time, my child will start college.” A next step would be to figure out how much in total is needed in August, then matching it with the source of funding. For items that are longer term, such as retirement savings or long-term care, you will need to either do the calculations or find a fiduciary financial planning professional to help you. Each step you take can help build your ideal future.
#4: Bravely admit fears.
This may be the most difficult step because of insecurities or uncertainties. Not only is it difficult to think about the unexpected because of the emotional toll, but we can be reluctant to admit that such a thing could happen to us.
If you know anyone who has been through a serious health issue or a job loss, take a moment to consider what you would do in that situation and how you would plan to protect against crises. These topics are actually much easier to handle than you may think. They are effectively managed from a financial perspective by tools such as an emergency fund, having an account that is accessible to more than one person, and appropriate insurance. The key to building confidence in decision making is to find advice that is in your best interest.
Estate planning is the other area that requires attention at some point, and a good estate planning attorney can guide you; don’t feel as if you have to do this alone. Not ready for all the issues step four raises? Go on to step five, and come back to this when you feel every fear has been tackled the best way possible.
#5: Commit to learning more about personal finance every year.
We have a sophisticated and constantly changing financial system. How have you kept up with learning about the financial aspects of your responsibilities that you identified in step two? You can use knowledge of policies, benefits, and tax rules to build the ideal future you described in step three. In our technology-saturated world, it is also necessary to be aware of financial scams to protect yourself, which could be one of the modern day fears you thought of in step four.
Your Relationship with Money
Having a healthy relationship with your personal finances may take as much work as an exercise routine. Describe your current method of handling finances, outline your responsibilities, create a timeline, admit your fears, and commit to learning more are the five steps that will allow you to make decisions with confidence and help you achieve a sense of financial well-being.
Ambari Prakash Pinto
Financial Advisor