When we think of wisdom, most of us think of the knowledge that comes with age and life experience. Have you ever thought about what it means to have financial wisdom? From my perspective, financial wisdom comes from empowering, educating and engaging yourself around your money so that you can make good financial decisions.
Here are five steps to help you become financially wise. (For related reading, see: 3 Smart Ways to Update Your Investment Plan.)
Create Your Vision
Creating a clear vision for your life is the first step in creating the life you desire. Describe your life five to 10 years from now. What does it look like? What have you accomplished? Then translate that vision into some financial goals that you want to accomplish. Some of the common goals that I hear are, "I want to..."
- Pay down debt
- Purchase a first or second home
- Start a business
- Achieve financial independence
- Increase income in retirement
- Not outlive my money
- Leave a legacy to my children
- Increase my financial security
- Take a vacation
- Reduce the amount of time spent worrying about finances
It is not good enough to list vague goals. They should be SMART (Specific, Measurable, Achievable, Realistic and Time-bound). For example: My goal is to build an emergency fund vs. my goal is to increase my emergency fund to $12,000 within 12 months. (For related reading, see: How to Budget and Spend to Maximize Your Happiness.)
Understand Your Money Beliefs
What are your beliefs about money that stand in the way of you achieving your vision? Do you tell yourself you are not good with money? Do you allow others (your significant other, family member or advisor) to manage your finances without being engaged in the process? Do you believe that you are worthy of the financial success that you want? Understanding any limiting beliefs you may have helps you to overcome them to make healthy financial choices.
It is important to empower yourself through financial education so that you can make informed decisions. Your financial decisions should be made based on sound information, research or advice and not on emotions such as fear or anxiety. In addition, education gives you the confidence to handle your finances appropriately. A good way to get the education and information you need is by enrolling in financial classes or workshops or searching financial websites. If you need more guidance, consider hiring a financial professional.
Have a Prosperity Mindset
Prosperity is more than how much money you have. It is also about having a successful and thriving life. Do you focus on the good in your life or are you focused on scarcity or what is lacking? A prosperity mindset allows you to be content regardless of what’s in your bank account.
Be grateful for whatever you have and where you are financially. We sometimes get so focused on where we are headed that we forget to be thankful for what we have today. Here is a quick exercise: make a list of five things that you are most grateful for in your life. Now, imagine your life without these five things. Doesn’t that help to put things in perspective?
Financial wisdom is not about how much money you have. It is about your mindset and confidence to successfully manage your finances and prosperity. (For related reading, see: 5 Financial Strategies to Last a Lifetime.)