There are four things that happen with money. We earn money, we spend it, and the remaining is either saved or invested. Two of these things are given, we earn money and then spend some or all of it. The remaining two, save or invest, are dependent on our earning and spending decisions.

This is usually the path that our hard earned money takes, not necessarily in the same order:

money path

Most people believe that our lifestyle is dependent on how much we earn. This leads people to strive to live within their earnings, which is a noble pursuit. However, there is another option. This option explores the idea of adjusting our earnings to fit the lifestyle we want.

Any action we take with our money has an effect on spending, saving, and investing. If we earn less then we have less to spend, save, or invest. On the other hand, the way we spend our money will have a knock on effect on our saving or investment decisions. Mostly there is a mismatch between what we earn and how much we want to spend, save or invest. This can be discouraging, but instead of being discouraged use this as an opportunity to make a plan or strategy to get where you would like to be financially.

Look at your financial health and let it reveal the areas that need your attention. Maybe, your spending is out of control, or you are not making the right choices between your saving and investing decisions. Perhaps you are not earning enough to lead the lifestyle you want.

As you move through the cycle of earning, spending, saving, and investing ask yourself the following questions:

  • Are my earnings sufficient to maintain the lifestyle I want?
  • Does my spending reflect the confines of my earnings?
  • Am I aware of my spending habits?
  • How much do I want to save in a month or a year?
  • What is my savings goal?
  • What do I want to invest in?
  • How much do I want to invest?

We could add another whole list of questions but the exercise here is to think about the expectations you have from the money you earn. I like to think of my financial life as a puzzle, with the goal of figuring out how of my earning, spending, saving and investing decisions fit into my long-term financial goals. Be proactive in your financial life, continuously think about the financial decisions you make. Don’t get stuck in a reactive routine where you are finding yourself having to make sacrifices because of your financial decisions.

The way to be proactive in your financial matters is to have short, medium, and long-term goals. Establish what your priorities are. It could be to lead the lifestyle you want or save or invest more.

Here are some tips on how you can be proactive with your finances:

Set Goals: Motivate and reward yourself by setting goals.

Make a Budget: If you are serious about staying on top of your finances, then you need a budget.

Pay off Debt: Reach financial freedom by actively working to reducing or eliminating your debt. Debt is often the biggest hurdle and burden we face financially.

Think about Retirement: Most people focus on the present, working tirelessly to achieve the desired lifestyle, forgetting about retirement in the process. Our working lives will come to an end one day and we have to be prepared for that time. Retirement planning has to be an integral part of our financial goals.

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