What’s the first step you need to accomplish before you can change any behavior? You have to obviously be aware of the behavior in question. That is why financial awareness is crucial if you want to change the state of your money. Essentially, you need to have a crystal clear awareness of where you stand today so you can get to where you want to be.
Here are a few tips that you can implement in order to increase your financial self-awareness:
Know thy Net Worth – To calculate your net worth, you need to know the total value of your assets (what you own) and the total value of your debts (what you owe). The difference between these 2 numbers will represent your net worth. I typically use this number as a benchmark when measuring my clients’ financial progress. For comparison purposes, you can think of calculating your net worth in the same way as stepping on the scale to measure your current body weight. So your net worth represents your “money weight”.
Know thy Cash Flow –Tracking your money in’s and money out’s will allow to know how much you are earning, how much money you are spending and on what. A common misperception about tracking is that you don’t need to do it if your finances are under control. The truth is, regardless of the state of your finances, if you don’t pay attention to the small money leaks while they are still leaks, they will become floods. So don’t wait for a crisis to hit before you start tracking.
Know thy Teachings –Financial awareness involves educating yourself about money. We live in an information-era where we are never short of knowledge. Subscribe to a few personal finance newsletters, regularly read money blogs, pick up a personal finance book from your local library or watch a money related TV show. Continuously educating yourself in this field will help you make better financial decisions.
Know thy Beliefs – You formed your money beliefs at a young age. Those beliefs are often related to the direct and indirect messages you received during your upbringing. They are also shaped by your own interpretation of your particular circumstances. Therefore, it is essential, as an adult, to uncover the limiting money beliefs that are keeping you away from moving forward. They represent subconscious blocks that can prevent you from living a more abundant life. They are also the culprit when you notice repeating patterns of financial self-sabotage.
Know thyself – Ask yourself the following daring questions: “Do I feel obliged to keep up with a social image when, deep down, I know I cannot afford?”, “Am I trying to fulfill a deeper unmet need with material things?”, “am I correlating my self-worthiness with my bank account balance?”. These are hard questions, but it is important to answer them as truthfully as possible to better understand your spending behavior.
(this article was originally published in the newspaper The Chronicle on April 23rd 2014 – Know Thy Money )