Making smart financial decisions isn't something that most people do naturally. They have to be taught how to do it. Fortunately, this is a skill set that can be learned over time. Certain principles dictate how people who make good financial decisions make them. They approach their financial decisions with for thought and patience. If you're among those who want to make smarter financial decisions, then here are five tips that will help you achieve this goal.
1. Give Your Money a Job
People who are savvy with their money prioritize how each dollar is spent. Basically, this means that they understand when they spend a dollar in one place then that dollar can't be spent someplace else. Real Simple explains it this way. When your money has a job, say for example, that you want to save for your education. The money that you have earmarked for the college can't be spent to buy a new car.
Further, remind yourself of your goals by putting them someplace that you can see every day. You can put them on your mirror or make a reminder on your phone. That way you remember where your priorities are and what job each of your dollars has before you spend them someplace else.
2. Wait a Week Before You Buy Anything
According to AARP, it's best to wait before you make a purchase. One of the things that really sucks the life out of someone's budget is impulse shopping. However, if you get into the habit of waiting at least a week (and even better yet, a month) before you make any major purchases, then you’ll cut back on the number of unnecessary purchases you make.
Waiting gives you the time to see if you really want the item or if it's just a spur-of-the-moment decision. If you do you still want the item after a week or a month, then you can see if it fits your budgeting priorities. If the item that you want doesn’t fit your priorities, then forget it. Chances are after waiting a week, you won’t want it, anyway.
3. Use the Envelope System
Money savvy people actually use a very simple budgeting system, the envelope system. Once you do your budget, then you put money for each of your bills in an envelope dedicated specifically to that expense.
For example you would have an envelope for groceries for two weeks, another envelope for your bills like gas or electric, and still another for your entertainment. Once the money is spent, then it's gone. You don't spend after that. The envelopes force you to think about how do you spend each dollar because you put a natural boundary on the money by putting it in an envelope.
4. Get Rid of Negative Financial Habits
Negative financial habits wreak have it with a budget. For example, if you tend to spend on the fly, then you're not really thinking about where your money goes. Or if you have lunch out every day instead of packing your lunch from home, then you're going to be spending a lot of unnecessary money. Getting rid of your negative financial habits impacts how much money you have left over at the end of each month.
If you're not sure what kind of negative financial habits you have, then it might be best to keep a money journal for a month or two. Each time you spend money write down that amount and what you spent the money on. This allows you to keep track of your spending and to identify the negative financial habits that you have so that you can bring them to light.
5. Get a Second Opinion
Sometimes making a decision by yourself isn't in your best financial interest. People who are savvy with money will discuss their decision with someone that they trust and who is neutral. Perhaps this is a spouse, but very often it could be a financial advisor from an organization, like IVA or some similar financial company.
Getting a second opinion gives you new ideas to kick around when it comes to your money. It also allows you to really think out your decision. If you can't adequately explain to someone why you want to spend money the way that you do, then perhaps you haven't thought it through thoroughly. Talking to someone about your money forces you to do this.
Final Thoughts on Making Smart Money Decisions
Many people think nothing of taking a class to learn a skill like graphic design or cooking. However, they think that there is something wrong with them if they don't know how to handle their money.
Truth be told, being good with money is a skill set like anything else. Just as you can learn how to cook, you can learn how to make better financial decisions, Usually, making good financial decisions requires that you put thought into how your spend your money.
Each dollar that you have is given a priority. You don't spend on the fly. Rather, you take time to think about your purchases. And if you're really on the fence about spending, then you don't hesitate to get advice about how to spend your money.
Doing so allows you to really flesh out why you need to make the decision that you do. This results in you taking better care of your money in the long run.
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