Get This One Thing Perfectly Clear Before Making a Financial Plan

by Miranda Marquit · 6 comments

Many of us want to start with the plan or the budget when it’s time to get serious about our finances and put together a goal of reaching financial freedom. We begin figuring out income, expenses, and creating a strategy for paying down debt. We will also be figuring out how much needs to be invested in order to reach retirement goals.

These are important aspects of financial planning and getting on top of your money situation. The reality, though, is that putting together a plan isn’t your first step. Your first step should be figuring out what matters to you.

Mindless Spending = Financial Waste

We hear a lot about money leaks and how to plug them. However, something you view as a money leak might not be one for someone else. At the end of the day, it’s all about what matters to you.

I used to buy things because I thought they might be okay, or because someone else had it and I thought it was cool. Many of us make purchases without thinking about it, because they are placed in our eye line, or to keep up with the neighbors.

How many times do we see what our friends and family have, and determine that we should have it too?

When you don’t know what matters to you, it’s difficult to say NO to spending that’s unimportant. How do you even know if it’s important (or not) if you haven’t identified your own values? Mindless spending leads to financial waste.

One day you’ll look around your house (like I did) and wonder why it’s full of stuff you don’t really care about and rarely use. Then you’ll regret not using that money to invest for your future, or at least to buy an experience that you could have really enjoyed.

When you figure out what matters to you before you make a financial plan, you’re less likely to spend mindlessly. When you know what matters to you, it’s easier to make the spending decisions that bring you closer to your goals and allow you to live the lifestyle you want.

Create a Plan that Matches Your Values

Once you know what matters to you, you can put together a more successful financial plan. Figure out what you want your money to accomplish for you. Do you want to give to charity? Travel during retirement? Reach debt freedom? Help your kids with college? Have the ability to take a vacation each year?

Prioritize your goals according to what matters most to you, and the time-frame you have to accomplish them. You might have 30 years until retirement, but you may only have five years to meet your goal of a sizable downpayment on a home. Take that into account, then create a financial plan around what matters most.

Once you’ve completed that step, it will be easier to say NO to the things that don’t matter very much to you. Then you’ll have more money for what’s truly important in your life.

What Matters to You?

It’s David here. Let me take you through an example. Let’s say you decided that what matters to you is to save up for your dream home. You figure out which area you want to live in, and it’s easy nowadays to see how much these homes are worth with a few clicks of a mouse. A few simple calculations later and you know exactly how much you need to save and for how long. Now whenever you want to buy something that just seems good at the time, you are no longer just weighing the benefits of that item. Instead, you are comparing it to whether it’s better to buy it or be one step closer to owning a dream home.

Maybe your goal is to be financially independent at a young age and retire early. Do you want to know why those guys practicing FIRE (financially independent retire early) can spend so little and feel great about what you believe are sacrifices? That’s because they decided that what matters to them is to be able to retire early and live the life of freedom they envisioned for themselves. To them, eating out or buying that new phone isn’t nearly as attractive as being able to quit their job and not have to answer to a boss.

There’s no right or wrong to how you want to spend money. It all comes down to what matters to you. The important point here is to be mindful of how you spend your money. No one is going to stop you from buying takeout at a fancy restaurant if that’s what you want to do. All we ask is that you are realizing how much that’s costing you financially. Is it worth working longer for a fairly delicious piece of steak? Are you actually risking a comfortable retirement for the habit of eating out? For me, takeout seems a bit too wasteful but I do occasionally spend quite a bit on a dinner night out at a fancy place with my wife. On the other hand, I could theoretically eat out at pricier restaurants much more often and still not bankrupt ourselves, but I will likely never be financially independent if I become a regular at one of those really fancy establishments.

Figure out what matters to you and then at least you are intentionally making smart decisions about your hard-earned money.

What are your spending priorities? Is your spending lining up to what matters most to you?

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  • Jeffry Crofoot says:

    Great article. Well said just think once before making financial plan. Mindless spending is totally waste of your money. I must say very informative and nice post. I really appreciate for such useful informative blog. Thanks for sharing.

  • David @ says:

    I was surrounded by people who value “stuff” growing up. I’m finally now realizing that experience, and convenience, is worth much more to me than any material possession.

    I spend way more efficiently these days because I’m only paying for services/things that truly make my life better!

  • Robert Curth says:

    Couldn’t agree more.

    Only if you know why you are budgeting or paying down debt, will any of this make sense.

    Only if you have a goal will it not feel like self-deprivation, but like going somewhere.

    Only then can you really begin to weigh your life now against the life then.

    • Paul says:

      Robert, I found this out at the age of 50! thank goodness its not too late. My “new” wife guided me finally see this as a truth, i fought for a few months, but now I clearly see the truth…..I shiver at the cost of all the $$ i have wasted throughout my life.

  • Melody says:

    This is such an important topic at the core of personal finance. I get frustrated when people feel that they need to know what “dividends” and “derivatives” are to be financially astute when really all you need to know is how to stop needless spending.

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