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One of the keys to financial health is maintaining a purposeful and conscious relationship with money. It involves having reasonable debt (if any), spending money based on your values, having a safety net such as insurance, and saving and investing money to meet your future goals. Regardless of your relationship with money, various steps can be taken to improve it.
How exactly should you go about it? The following steps will help you develop a better relationship with money.
Take Note of your Money Habits
First, take time to evaluate how and where you spend money on a monthly basis. The following simple exercise will help.
List the top things you spend too much money on and then rank them in the order of what makes you happy the most and what least appeals to you.
Ask yourself the following questions:
- What motivates you to spend money on certain areas?
- What are my triggers?
- Am I an impulsive buyer?
Note that your relationship with money is largely embedded in your character. By paying close attention to your behavior around money in terms of income streams, you can get a deeper understanding of yourself then use the knowledge to improve your financial habits.
Putting it all together
Improving your relationship with money also stems from making a fundamental change in your mindset. Having a good relationship with money is not necessarily about earning a large income or working overtime.
However, it is about placing less emphasis on decisions where money is involved. There will not be pressure to take up a job or a career where money is not the primary factor.
Adjust your Goals
Watch your budget closely and only spend what you comfortably can afford. Many people tend to spend more and more as their income increases. Rather than increasing spending, it is wise to increase savings instead. The best way to help you focus on your goals and spend less is by establishing incentives that will motivate you to watch your budget.
Focus on Saving
Credit cards are very tempting since they separate spending from the pains of payments that need to be made. The best way to do this is to set a default savings transfer your bank account or paycheck. It is wise to focus on your hard-earned money and use it invest in businesses, purchase a home, and opening savings accounts.
You can even have your pay raises directed to your retirement accounts, for example. Saving can be interpreted differently by various people; one reason it is important to create a healthy relationship with money is to ensure you pursue your long-term goals.
Investing is a great way to strengthen your relationship with money. The first rule here is to invest in what you already know and understand what makes a good investment, i.e. penny stocks vs. small-cap stocks vs. large-cap stocks, etc.
The world of investing can be overwhelming and confusing, which leaves many would-be investors unsure where to start. Some of the forms of trading include:
- Swing trading – trading here is held more than a day, but shorter than a hold and buy strategy that can be held for months. To profit from swings, the asset being traded may be held for a number of days at a time. Profits in swing trading are gained by short selling or buying an asset.
- Value investing – this is where the market is believed to overreact to bad and good news. The trader is involved in looking for stocks that may have been undervalued and profit by buying when prices are deflated.
- Growth investing – this is when an investor makes an investment in companies that have an above-average growth rate. This method focuses on capital appreciation.
Investing in stocks, no matter what form you choose, will require you to be ready and willing to take the risk. It is wise to ensure you research ETFs to track the performance of the industry, choose sectors to select your stocks based on your criteria, and stay informed by reading stock analysis constantly updated by CMC markets and other reputable financial news releases.
Get Started Now
Many people have an unhealthy relationship with money. For you to change your financial status, first alter your paradigm about money and then act on it. Developing a good relationship with money is vital if you want to live the best life possible now and in the future.