Being financially responsible is crucial to maintaining overall wellbeing. It’s challenging, however, to put this into practice, as it’s often subject to emotional influence.
We consider how to effectively manage your emotional response, and take control of your finances, in order to achieve financial freedom.
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Financial responsibility defined
Financial responsibility involves making informed decisions, consciously allocating funds, setting goals, and planning for the future. It also involves exploring the emotional aspects that influence your financial decisions, says Nadine Moses, money coach and founder of By Numbers Accounting.
“Understanding our mindset around money and how our past experiences shape our relationship with it is essential,” she says.
Take proactive steps
To combat the negative impact emotions can have on your finances, and establish firm financial plans, Moses offers the following suggestions.
Learn about your emotional connection to money
Be aware that your emotions affect your spending choices, and explore ways of combatting this, Moses recommends. By gaining knowledge and understanding, you will empower yourself to make informed choices. She suggests reading books, attending workshops, and seeking guidance from a money coach.
“Needs are essential for survival, such as food, rent, and transportation, while wants encompass enjoyable experiences such as entertainment and holidays,” says Moses.
“Desires represent our dreams, such as travelling, starting a business, or owning a farm,” she says.
Once you’ve identified which of these camps your expenses reside in, you can prioritise them accordingly.
Be honest about your financial situation
“Your financial situation includes your assets, liabilities, income, and expenses, which can be represented through a balance sheet and income statement,” says Moses.
Once you’ve taken an honest look at these, you can determine where you want to be, and develop a plan accordingly.
Establish a plan of action
Current, medium, and long-term plans are crucial for financial success.
Current planning, often referred to as budgeting, will help you understand how you allocate your money, Moses explains. “This involves assessing your income, expenses, and savings, and attaining a clear picture of your financial priorities.”
Medium-term planning entails saving and investing to secure your financial future. Moses says, “This allows your money to grow over time and provides financial security through emergency funds, passive income, and planned expenditures.”
Long-term planning, Moses concludes, focuses on retirement and ensures financial stability for when you can no longer work.
Although it may seem daunting, taking responsibility for your finances is crucial. By considering your situation honestly, assessing your emotions, and planning carefully, you will be well on track to achieving a solid outcome.
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