What should your focus be?
Last year we ran a poll on social media. The results were pretty consistent!
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The results didn’t surprise me. But I am not sure I agree with the results.
Do you need to make more money?
This might seem like it obviously applies to everyone (more money would make everything easier), but that might not be the case.
If you don’t have your spending under control, more money is just going to keep flowing out. Even worse, you might get used to the higher level of spending.
For people who have nailed down their spending habits, more money can be effectively used for savings/investments/meaningful spending.
Do you need to spend less money?
If you are saving and investing as much as you want to, maybe not. I think there is a lot of value to be gained from optimising spending (making sure that you are getting as much value, or enjoyment, as possible from your spending) but the only reason to seek to reduce it would be if you are not able to save or invest enough to reach your goals.
The more ambitious your goals, the more likely you are to want to reduce your spending.
Do you just need to keep going?
Quite likely. One problem with sorting out your finances (optimising spending, starting to invest, making a plan) is that you only have to do it once.
After getting your basic habits set up and running, other than monitoring things every year there is nothing to do. It is actually pretty boring.
The results are not boring, but it takes years to get them and the temptation to meddle and change things can be strong. Don’t give in.
Do you need to spend more money?
Possibly. People who are very good with money (or who train themselves to be, like I did) might get so used to prioritising saving that they struggle to start spending when it is appropriate to do so.
Most people are the opposite, they find it too easy to spend, but if you are a good saver you need to re-evaluate things once you reach your goals.
After all, there are no prizes for saving the most, and you certainly can’t take it with you.
What state of personal finance are you in?
It’s fairly simple to work out. If you have optimised your spending but you’re not saving/investing enough, you need to earn more.
If you have not optimised your spending, you probably need to spend less.
If you have optimised your spending, and you are saving/investing enough, you just need to keep going.
And if you have reached your financial goals but continue to save/invest in the same way, you might need to spend more.
Where are you?
“need to spend more” …But just as a choice in this categorization, since it’s more like ‘not the other three’.
Yes, you can’t take it with you, but I’d question whether that fact, or simply being in that final category leads to the “need” to “spend”.
Possibly! But I find that people in that specific situation (definitely a minority) are stuck in spending habits that no longer make sense. They are depriving themselves of experiences they could easily afford because their mental model does not match their present financial situation.
I’m running into this myself at the moment, and I definitely saw my grandparents doing something similar.