Answer These 4 Questions To Improve Your Financial Awareness

8/20/2020

Answer These 4 Questions To Improve Your Financial Awareness

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What to do if you have poor money management skills.

The low bar has gotten even lower over the years regarding what it means to have "no money". In the past we used to believe that no money truly meant that you had a goose-egg in your financial accounts. Yet this is overly simplified because we actually have less than zero in many instances due to debt. The late Jim Rohn used to say that credit usage has allowed you to "whistle right on by zero".

We live in a consumerist society filled with things we likely do not need to impress people we probably have no business trying to impress. Consider what might happen if you spend a weekend with friends who own a large home and two new cars. Or maybe a long weekend with parents or relatives who own a beach house with a below ground swimming pool. How might you feel coming out of that experience?

For most of us, we would judge our own successes and failures by whether we had possessions or material items that matched up to those that we were just around. Often times, this is due to a psychological concept known as recency bias - a cognitive concept that suggests we place greater importance on events that occurred most recently in comparison to events that occurred further back in time. That explains why you suddenly want a new car or to upgrade your kitchen after you spent time with some followers of the "high social status" camp.

Awareness Is More Elusive Than You Think!

Stopping for a moment to realize whether you are making financial decisions based on what others have versus what aligns with your long term financial aspirations is an enormous step worth mentioning.

Admittedly, I have often experienced the strong urges to display my financial prowess by competing with the purchases of others. After hearing discussions of my in-laws discussing who in the family just purchased a lake house or who "has enough money" to retire early and golf three times per week, I am left feeling more outraged than anything.

Please understanding the context of this. At the time of this writing I live in the low-income part of town above an automotive shop driving a car with well over 200,000 miles. I purchase everything I can at discounted rates and have not seen a new pair of shoes in over 8 years. Despite the appearance of struggling financially, my wife and I are rapidly approaching a net worth of half a million dollars (which we aim to attain by early next year).

Why am I sharing this with you? Imagine the outrage I might have of knowing what real financial strength means, and listening to a dozen people sit around talking about who "has money" and who doesn't. Consider that if you added all of their "money" together, it would still be less than what my wife and I have and we are considerably younger than the rest of them.

Outside of you as one of my readers, very few people around us actually have any idea how much wealth we are actually accumulating. Why? Because we don't buy things that trumpet and display how much money we have! Unless you want to walk around and show people your account balances (I do not recommend this), the only person who really needs to know this number is you (and your spouse if you have one).

So How Do I Develop Awareness and How Will It Lead To Financial Success?

I suggest regularly, perhaps even daily, going through the following reflective steps to incrementally build awareness:

1. What am I currently contemplating purchasing? - The sooner you realize that you are always thinking about this one, the better off you will be. This is the foundation for developing awareness. You are thinking about either consciously or subconsciously, it's just the nature of our being.

2. Why am I contemplating purchasing it?

What spurred the decision to purchase this item? Was it out of need/necessity or because I just saw somebody else with one and I have FOMO (fear of missing out for the older folks)?
Is this purchase something that I need to fulfill my daily duties?
Will I attain lasting satisfaction from this purchase or will it be likely be fleeting and otherwise not contribute to a lasting memory or experience?
Do I really need to "treat" myself right now or am I getting a little soft and looking for a pat on the back? If your looking for a "feel good" consider exercise, meditation, aromatherapy, music, or just petting the damn dog instead of attempting to buy your way to happiness.

3. What am I currently saving and investing?

What am I doing with the money that I am not spending and where is it going?
What is my net worth?
Is my net worth as high as it should be?

4. Why am I saving and investing it?

Why is it important to me to have a high net worth?
Would I like the option to quit my job at any time if I want?
What does financial independence provide me that "purchases" cannot?
What does my ideal day/life look like and am I getting closer to it financially? Some individuals will have lower annual costs than others when it comes to an ideal day/life.

Contemplate these four questions everyday and you will be amazed at how quickly you start to build financial prowess and control over your finances. The old saying goes "you don't know what you don't know". If you are unaware of what your financial habits and behaviors are, and you perform them mindlessly day after day and year after year, you will someday have a death grip on social security as your primary source of retirement income. That is not a position that I, nor anybody else, would want to be in because that likely means you've done a poor job of paying yourself first throughout your life and building your net worth.

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