Building Financial Resourcefulness
Posted by: Joseph Kuo | March 11, 2021
Financial resourcefulness is the desire and ability to make the most out of your financial resources. Aside from just making more money, financial resourcefulness also involves being well-organized, knowing your financial goals, and finding effective ways to reach them. Here are a few quick and easy steps to take that will get you going on the path towards better financial resourcefulness.
Organize Your Financial Records
You’ll never take charge of your financial life unless you know where you are. The first step to knowing where you are is getting organized. Gathering, sorting, and arranging your financial records in a simple and efficient manner will allow you to build a picture of your financial status and provide a basis for developing an action plan.
Initially, getting organized can be a tedious and time-consuming task, but the time you spend getting organized will be more than worth it in the long run. To help get you started, here are three simple steps for setting up a filing system:
- Gather all financial records, whether they are in paper or electronic format.
- Sort into different categories: account statements, insurance policies, payment records.
- Within each category, sort in an order that makes sense to you.
Set Financial Goals Based on Your Life Goals and Values
You’ll be more motivated to make improvements in your money matters when you view your financial resources as tools to sustain your own values and priorities. When deciding your goals, be honest with yourself and think about what you really want, as opposed to what others might expect you to want.
Your short-term goals should be a mixture of both short and long term, and can be a mixture of both fun (save for a vacation) versus serious (pay off a mortgage). What you identify should then become the basis for establishing your long-term life goals. For example, a short-term goal of paying off debt can become the basis of a long-term goal to build a nest egg of saving for your children’s college fund or for retirement.
Develop a Money Management Strategy
We’ve all heard the stories of the professional athletes and lottery winners who squandered their millions within a few short years. At the opposite end of the scale, there are the secretaries and delivery drivers who saved up over a million dollars on modest salaries. No matter what your income level is, you will never make progress towards your financial goals if you have a negative cash flow or just break even from month to month.
To break out of the cycle of negative cash flow, first analyze your spending habits and decide where you can easily reduce expenditures. Start with low-hanging fruit: small items you might not be fully using (or could do with less of) that are easy to reduce. Even though the amounts saved from each of these items can be small, if you can accomplish several small items, they will add up and help get you into a positive financial mindset. Then you can look at larger expenditures and look for smart alternatives.
From here, you can then develop a spending plan. Unlike a budget, which implies that you have to cut back on spending as if it was a diet, a spending plan is a road map with step-by-step directions to your financial destination. When you are focused on the benefits of reaching your goals, you will be motivated to take the quickest way to get there and to stay on course.
Next, take a look at your credit card debt. Do whatever you can to consolidate your credit card bills, reduce the interest rates, and accelerate payments. Pay off the higher interest rate balances first to reduce the load on your monthly cash flow. Once you have your debt under control, you’ll be able to start moving towards your future.
Take a Proactive Approach to Reaching Your Financial Goals
To make sure you are on track to reach your financial goals, you should monitor your progress on a regular basis. Whatever your goals are, it is essential to get specific. Here are some examples of specific goals:
- Save $2,500 to take the family to Disneyworld next year
- Build a retirement nest egg of $_______ by the time I reach age __.
- Pay off my home mortgage in X years.
Note that all of these examples include an amount and time frame. With these details, you can develop a plan, in other words, the “how to” steps to reach your goal. Equally important is to schedule time to evaluate whether your plan is working. Depending on the goal, you should check your progress on a weekly, monthly, quarterly, or annual basis. If you discover you are not on track to reach your goal, you can make corrections and get back on course.
Remember that the accumulation of money in and of itself is not the ultimate goal, but rather a means to wellness, happiness, and life satisfaction. From these steps, you should be able to build an initial picture that will help you determine any immediate next steps to take.