Personal Finance: Where to Start

personal finance 101

At some point it’s there, either in the front of your mind or in the back of your mind. You should be doing something about your personal finance situation.

They talk about it on tv. The internet is full of articles, blogs, and websites devoted to it.

But it’s daunting. There’s too much information and you don’t know where to begin. It’s a big deal because you know you need money to pay for things but this just adds to the anxiety because what if you screw it up? Maybe you’re already screwing up.

Take a deep breath. Forget everything you’re thinking. We’re going to start from the beginning.

Don’t even think about the word “finance” or about money. Really, just ignore anything that has to do with money for now. Instead, think about what kind of life you want. Just drift for a bit.

Is there a type of stress that you want to remove from your life?

Did you experience a bad situation that you never want to go through again?

Maybe you have something you always dreamed of doing?

Any ideas what you envision for your life five or ten years from now?

It could be anything really. Don’t rush this, it’s likely to be a gradual thought process. Days, weeks, months…a few minutes here and there…

Think of this as your foundation; it’s not only about what you’re thinking but also how you’re thinking. I know it may seem strange but stick with me. There’s a reason why I’m telling you to do this.

Identify what’s most important to you.

That’s what this thought process does. After you do it for a while, you might start to realize that a lot of the things you want have the same underlying driver. Or you might start to realize that you keep looping back to the same things when you think about what you want.

Make sure when you’re thinking about these things that it’s for a longer time frame. I suggest five to ten years – you can’t get caught up in what you want now or what your plans are for next year. Don’t worry, you’re not locked into anything; the things you want are going to change over time. But because you’re trying to identify what’s most important to you, it’s likely going to be something big and anything big will take time to achieve (like five to ten years).

Now comes the hard part. Pick out one thing that will get you closest to the life you want. It could be anything.

You’d be happiest staying near your family that lives in an expensive city which would mean having to increase your income?

You want to experience as much of life as possible and travel the world so you have to figure out how to fund your activities?

You feel scared that you won’t be able to afford food and shelter and would feel most secure with a steady, reliable income stream?

You worry constantly about being in debt and would be happiest if you could save more?

Your personal finance decisions should be driven by what’s most important to you. Of course, life happens unexpectedly and sometimes you need to make a choice which runs counter to your long-term goal, but the more you’re able to keep your #1 goal in mind, the more you’ll be able to stay on track to reach that goal.

Once you figure out what matters the most to you personally, you’ll have a framework for deciding what to do financially.

It’s easy to become overwhelmed or derailed with personal finance because most things in our life require money and the cost of living has exceeded wage gains for most people, so we’re off-balance to begin with.

Which is why you have to figure out what’s most important to you and focus on it when making decisions. There are so many financial choices you can make that if you don’t have a strong starting point, you can easily wind up doing something that makes no sense for your long-term goals.

Again, it’s ok if you have a good reason for making a choice which doesn’t fit with your long-term plan. Maybe your ultimate goal is to focus on saving but you wound up having to pay for an unexpected medical bill; that’s completely understandable. But maybe your cell phone is a few years old, slow, kind of ugly, and you want the newest iPhone but technically your old phone is still usable…keeping your savings goal in mind could remind you that you’d rather be debt-free a month sooner than buy a new phone right now.

This is the most important lesson in personal finance – always focus on personal before finance.

Once you’re comfortable with this starting point, you might have questions about debt vs savings.

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