Today is the beginning of a brand new year, a fresh start. For many people, now is the time to leave the regrets of 2017 behind and do better in the year to come. Millions of people all over America are making New Year’s resolutions to do better financially.
How about you? Would you like to improve your finances in 2018? I’ll help you. Your current finances are the result of decisions, both large and small, that you have been making your entire adult life. If you want to make a change in your financial life, you’ll need to change the way you make decisions.
Today, I’m going to show you how to make better financial decisions.
How We Make Financial Decisions
Often, the decisions we regret the most were made when we were stressed out, emotional, going through difficult times, feeling desperate, etc. You used the last of your gas money at the McDonald’s drive-through so the kids would finally stop whining. You bought that timeshare when you were honeymooning in Hawaii and everything seemed possible. You cashed out your investments when the market bottomed out because you were afraid of everything you heard in the news.
Wouldn’t it be great if life weren’t that way and we could always make rational, well-thought-out decisions regarding our finances? It would be nice, but it’s not going to happen. We live in a fallen world, so life will always contain turbulence.
Then what’s the key to not letting circumstances and emotions sabotage your decisions? Prepare yourself ahead of time. You know that you’ll have a number of decisions to make in 2018. Take some time now to prepare yourself to make them.
Write out some parameters, a guidebook of sorts, that you will use to guide your decision-making and keep you on the right path to achieving your long-term goals. Make your own personal money guide that will direct you towards the best possible decision even when the going gets rough.
How To Make Your Own Personal Money Guide
Step 1: Introspection
The first step in making your money guide is looking within yourself. What are your beliefs and values regarding money? How has your personal history shaped how you feel about different financial matters?
Is it paramount for you to finance your children’s education or give to missions? Do you have a strong aversion to debt? Do you place a high value on owning your own home? Do you want to be able to pastor without your church having to support you?
You won’t know what the best financial decision is for you until you first know what matters most to you and why.
Step 2: Goals
Once you’ve done some soul-searching and decided what matters most to you, you can start setting some goals. What do your beliefs and values look like in concrete terms?
If missions is a priority for you, maybe you want to set a giving goal or get yourself into a position where you can afford to go on the mission field. If you really want to own your own home, you need to save up a down-payment. If you don’t like debt, you should set a goal to live debt-free.
Even for priorities that aren’t centered on money, there is probably a financial component to them. Is your marriage important to you? Money is the #1 cause of arguments between spouses. What goals do you need to set to protect your marriage from money-related stress? What will make your wife happy?
Step 3: Guidelines
Now is the time to combine your goals and values into actionable steps. Your goals tell you where you’re going, your values tell you why, and now you need to put guardrails up that will get you there. You need to set for yourself clear guidelines that are broad enough to apply to whatever comes your way, yet specific enough that you will know what to do when the time comes.
What kind of guidelines might someone who values being debt-free have?
- Only make credit card purchases if you already have the money to pay them off at the end of the month.
- For any large purchases that go down in value, you will save up and pay cash.
- For large purchases that increase in value, you can take out a loan as long as the payment is less than 25% of your income.
With these guidelines in place, you will know what to do when your minivan breaks down. Even when the salesman tempts you with a low, low payment, you will have decided ahead of time not to finance something that goes down in value and make your decision accordingly. You will not make an emotional decision that leads you away from your ultimate goals and priorities and leaves you with regret.
Other guidelines that you might include in your personal money guide, depending on your goals, are:
- Giving 5% of your income to missions
- Maintaining a life insurance policy as long as you have dependent children
- Waiting at least 3 days before making any purchase over $300
- Not buying a home until you have a 20% down payment
- Saving 15% of your income for retirement
- Keeping certain percentages of your savings in different kinds of investments
- Not going on vacation until you have a 3-month emergency fund, then only doing 1 vacation a year until you have saved up enough to cover 6-months of expenses
- Putting 80% of any “extra money” towards a long-term savings goal (like college) and 20% towards current spending
- Never having more than 10% of your portfolio in individual stocks
- Setting a monthly budget that both spouses contribute to and agree on
- Using your tax refund to pay down debt
Step 4: Action
The hardest part of any plan is actually following through and doing it. If you are committed to making sure that your finances line up with your values, then you need to follow your personal money guide when making your decisions.
It might help to have an accountability partner that you share your personal money guide with. It can be tempting to trade your long-term goals for short-term relief, but a trusted friend or spouse will remind you to stick with the plan even when it is uncomfortable.
You might find that your guidelines are not specific enough to be helpful or need other adjustments. That’s okay, keep tweaking it until it works for you.
Finally, goals change over time. Make it a habit to do an annual review of your personal money guide and update it as necessary. With regular maintenance, this one little document can lead you to make the best possible financial decisions for the rest of your life.
Make 2018 your best financial year yet. Take some time now to develop your own personal money guide so that you can approach all of your financial decisions with confidence that they will lead you closer to fulfilling your dreams and God’s plan for your life.