Two common areas that cause people to procrastinate financially are knowledge and confidence. However, what comes first: knowledge or confidence? It is like a chicken-and-egg debate.
Logically, we know that financial literacy can boost our confidence to make informed money-management decisions. Yet, many people tell me that they lack the confidence to learn and absorb that financial knowledge, which holds them back.
There is no denying the financial industry can be daunting. We have to contend with an overwhelming volume of financial jargon, the many and complex approaches to money management, and the sheer scale of conflicting opinions on how money should be used, budgeted, saved and invested.
Many people talk of how they give up on their goal of financial independence as it is too scary, confusing and overwhelming to do it alone.
It can be a very lonely place to be. Money management is a subject laden with confusion, shame, judgment, expectations and stress. There simply aren’t many safe spaces to admit you are lost or struggling and would like help.
So what can you do? To start, remember money is a tool. And mastering it is similar to any other life skill — we need to practice, make mistakes, learn from them and keep moving forward.
Money cannot control you unless you let it. It is not a reflection of your worth as a human being. It is an important tool in life that, globally, education systems fail to teach us how to master.
It is not how much one earns that dictates how good they are with money or how wealthy they are — the differentiator is how they manage it. So how do you master it?
The first step is to check in with your money mindset. Think about your first memory of money. Is it a positive or negative one? How have you carried that feeling into how you manage your money as an adult? How do you feel when you spend money?
Read money mindset books and become aware of how yours is affecting your financial habits.
Review your money habits by reading credit card statements and understanding where your money is going. This will give you financial clarity. And money loves clarity.
Categorise your spending into needs, wants and financial goals, such as savings, investing and paying off debt.
Ideally, your needs would be no more than 50 per cent of your income, wants are no more than 30 per cent and at least 20 per cent of your income is allocated to your financial goals.
If you are yet to be in alignment with this split, that is OK. It is an important piece of clarity. A good financial goal would be to reduce your spending or increase your income so you can achieve 20 per cent savings.
Notice your reaction to your expenses. Which ones feel good and reasonable? Which ones bring up feelings of regret or shame?
These reactions will help you to understand your habits, such as what is important to you and what is not.
Pay attention when it is a negative reaction — these are habits that you can change and replace with positive ones, such as saving or reallocating money to areas you feel good about, that are important to you.
This is the start of putting your money behind your values. It is liberating and does not require the understanding of any complex financial jargon.
If you do not have an emergency fund, it is an important financial goal to have. Save three to six months of living expenses in an easily accessible savings account. This is your short-term financial safety net.
This exercise will help you feel in control of your money. Having clarity over where your money is going helps you to learn more about your money mindset and how it affects your decisions.
It also helps you to understand your values and what is important as you move towards the financial security that an emergency fund can provide.
Remember: the difference between those who do and those who don’t is the belief that they can.
Everybody is capable of effectively managing their money. While some need mindset adjustments, others need a confidence boost or a little reassurance that they are on the right track.
Simplify it, take small steps, follow the above steps and when doubt starts to creep in, remind yourself that money is only a tool and you are learning. Above all, however, follow your intuition.
Carol Glynn is the founder of Conscious Finance Coaching