According Sir Francis Bacon, "knowledge is power."
A few weeks ago I wrote about a free web based financial tool, Mint.com. It truly is an amazing tool in that it gives you tons of information. Using this tool you can view all of your financial accounts in one location. And they are updated instantaneously when you log into the site!
The potential impact of this tool can be seen in the comment below.
changed my life (in that it shows me how i spend badly, not that i actually changed my spending). BUT I DO LOVE IT!
As this comment succinctly illustrates, information can only empower you to the extent that you use it; the reader did not use the information to make any changes. This does not mean that she is wrong in how she used the program or lacks power in her life! It may be that this is always she needs or wants from the program. Gaining information is often the first step.
Knowledge Can Be Power
If, once you have information about your finances, you choose to change you spending habits, the strategies below can empower you to do this. Using these strategies you will counteract the pull of instant gratification, and will be more likely to make spending a statement about your values. That is, you will be more likely to spend on what is important to you.
1. Ask yourself questions that help you evaluate your spending.
What am I hoping to gain from buying this item?
Will I actually receive the expected benefit?
Is the tradeoff of my time, work, worth what I will receive from buying this item?
Is there another way to spend my money so that I can get what I really want?
Simply, do I really want this?
2. Give yourself time
If you are still feeling ambivalent about your reasons for spending, give yourself 48 hours before making a decision. Maybe the desire to buy a particular item will pass. You may decide that using your money in this way is not what you want or you may decide to make the purchase. Either way, giving yourself time to make a decision will help you make an intentional choice that is in line with your values.
3. Make your spending visible
When you decide to buy a discretionary item, write down the item, date and amount in a notebook. Do this each day for 2-3 months. The act of writing it down will help you to see how you are spending your discretionary income, and may also help you counteract any impulse buying.
Each week set aside time, about an hour, to review and work on your finances. If you are using Mint.com, this will be easy. If you wrote down your discretionary spending in a notebook, review this spending, too.
During these sessions, you should:
*Review and take the necessary steps to resolve situations, such as the examples mentioned below.
- Do you need to transfer money?
- Did you get charged fees that you need to question or contest?
- Do you need to cancel a service that you are not using?
- Are you being charged more than you anticipated for a service and need to call the company to question the charge?
- Do you want to be more aggressive in paying off a high interest credit card or transfer the amount to a lower interest card?
*Review your budget. Are you on target or do you need to make changes?
5. Create a budget
If you are ready, decide how much you are want to spend in various categories. A strategy as simple as putting money in designated envelopes works for some people.
Above all, the knowledge that you gain from having a complete financial picture will become Power, if you choose to use it.
It may not be easy. It will take time and effort, and you may want to ask for help. But you will have more control over your finances. That is power!
Most powerful is he who has himself in his own power. – Seneca