4 Mental Shifts for Better Money Management (MNP 3 Minute Debt Break)

2021-05-06  3 minute read

Debt Solutions

Lifestyle Debt

Nobody sets out to have their lives turned upside down, get into debt or deal with the unimaginable stress it causes. But that doesn’t mean most of these situations aren’t preventable. Here are four critical mental shifts which can help turn possible hopeless situations into success stories.

Save for Emergencies. The golden rule in personal finance is to expect the unexpected. An emergency fund is the most important financial tool you have at your disposal. Setting aside three to nine months living expenses will help you weather almost any financial storm that comes your way – while avoiding added debt and punitive interest payments.

Give Every Dollar a Job. With the right approach, writing and sticking to a budget can be one of the most financially liberating things you can do for yourself. It helps identify your financial priorities along with any leaks in the boat (such as unsustainable debt, subscriptions you pay for but never use or overspending at restaurants or retail establishments).

This process need not be complicated or time consuming either. Begin every month by writing down your expected income, fixed monthly expenses and estimated variable expenses. Subtract your expenses from your income and what you have left over is for things like savings and leisure. Next, decide how much you would like to save and what you’d like to set aside as ‘fun money’. And there you have your budget.

Calculate the Opportunity Cost. Opportunity cost says that every dollar you spend on one thing is a dollar you can never spend on something else. For example, if you purchase a new smartphone for $500, you cannot use that same $500 to purchase a flight to Hawaii. Therefore, you can measure the true price of your phone not only in its cash value, but also the value you placed on taking a vacation. Whether that’s a worthwhile trade off is up to you.

Make Friends with Your Future Self. Whenever you’re uncertain about a medium- to large-sized purchase, it’s often helpful to visualize your life five, ten and even 20 years down the road. Will you still be using or benefitting from that product or service? If you’re using credit – will you still be paying for it? Will you regret it?

Put yourself in that person’s shoes. Imagine their hopes, aspirations, challenges and goals. Treat them as genuinely as you would your mom, dad, sibling or best friend. Remember the golden rule – do unto others as you’d have them do unto you – because in this case, that’s exactly what is happening.

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