Taking charge of your finances is never easy. Between choosing the right checking account, exploring retirement and investment options, setting a budget, and more, the list of items to consider seems endless. And there’s one area that doesn’t receive as much attention when it comes to creating your comprehensive financial plan: financial mindfulness.
While different types of bank accounts, credit and lending options are all part of a solid financial foundation, financial mindfulness is much more personal. It’s an important tool that can help you determine your financial strategy throughout your life.
Using financial mindfulness, here’s what to consider when setting goals and establishing your financial independence.
Determine the type of life you want to live
As you look toward your future, the essential first step to financial mindfulness is to determine the type of life you want to live. This can be difficult to articulate or identify for some, especially with social media constantly showing the highlight reels of other people’s lives, which creates pressure to spend and do as others do.
When you log in to your favorite social media app, you’re likely bombarded with photos and videos of other people’s lives and lifestyles. Even if it’s not something you would normally be interested in, it can create feelings of “FOMO,” or the fear of missing out, making it more difficult to determine your preferred lifestyle.
As you’re taking control of your finances, it’s important to balance the FOMO with the very real risk of financial instability. While the fancy car and latest gadgets might seem critical to have, remember that social media doesn’t tell you who maxed out their credit card or went into debt to maintain the lifestyle they’re showing off.
To find your lifestyle fit, try this exercise: Look honestly at your current job and the salary or wages you’re being paid. Then, think about what is going to make you happy – whether that is in the short-term, or years down the road.
Next, look at the costs of essentials you need to live, such as housing, food, transportation and insurance, as well as building your emergency fund. Even though an emergency fund is technically “savings,” we recommend paying yourself as part of your essential expenses. Deduct the total amount of those essentials from your salary. Then, be sure to set aside some funds for any additional savings goals. Start your retirement fund and ensure you are contributing enough to earn your full employer match, if offered.
Once you’ve set aside the funds for the essential expenses and savings, go back to your vision of a life that would make you happy. For example, if traveling brings you joy, you may be willing to cut costs on groceries and other variable expenses to afford plane tickets and hotels. In contrast, if you’re a homebody who loves to cook, your budget for groceries may be significantly higher each month.
Can the expenses fit in your budget? If yes, then you can add your happy expenses to your monthly budget.
If your income and your desired lifestyle don’t match, don’t worry. Focus on paying for the necessities like housing and saving for the future. With a clearer sense of your priorities, you can begin to define next steps and a plan or strategy to get there.
Embrace the changes
Once you’ve set your goals and envisioned the life you want, it’s easy to get frustrated if it feels like things aren’t going your way quickly enough. You may even feel some discomfort as you find yourself transitioning from one life stage to another.
For example, let’s say you’re a 22-year-old recent college graduate. Throughout your life, your parents may have paid for or supported your housing and other living expenses. During these formative years, any extra money you made from your work could be spent as you wished, whether it went to football games and coffee, or to dinners with friends and spring break trips.
Now, however, you may find yourself sharing a tiny apartment with a friend or other roommates, and maybe 30% of your income from your new full-time job is going toward paying rent. In some cities, rent could be an even higher percentage of your income.
Between contributing to your workplace health insurance plan and the costs of groceries, utilities, and more, it can be shocking to find that there isn’t as much “fun money” left over as there used to be – let alone money to stash away for retirement and savings. On top of that, your quality of life may be drastically changed than what you experienced when you were growing up and living with your parents. For instance, your family may have an established and furnished house, plenty of streaming services, ample food, pets, and the general comforts of home. But remember, your parents spent years building that life and lifestyle. As you set out on your own, you will need to choose when, what and how much you spend to build your own home and independence.
It’s important to give yourself grace during these transitional times — don’t be too hard on yourself as you work to gain your financial footing. Of course, there’s an adjustment period as you find the new normal, but eventually you’ll get there.
In the meantime, be mindful of your financial milestones, because the small wins do matter. Whether it’s your first $1,000 in savings, paying all of your bills on time, or something else, celebrating the small wins can increase confidence, build momentum, and help you on your path to achieving bigger goals.
Your budget should be seen as a tool to support the lifestyle you want to build. When it comes to personal finance, there’s one feeling that is especially toxic: guilt. If your spending is making you feel guilty, it can sometimes cause a shame spiral that leads to more bad choices — bad choices like throwing your budget away all together, or intentionally avoiding checking your bank account.
Luckily, there’s a way to fight against guilt: factor some fun into your budget. Set aside some “smart” money that you can spend, guilt free, because you know that all your other essentials are covered. Be intentional with how you use your “smart” money, by spending it on things that bring you joy.
Allow your values to shape your goals
You know what they say — the only constant in life is change. As you look toward a long financial future, your life will undoubtedly change in a variety of ways. But by allowing your values to shape your financial goals, you can stay true to yourself while working toward those goals, even as they change.
You can certainly count on your spending cycles and financial priorities changing throughout your life. For example, your 20s may be about getting ahead in the retirement savings game, while also seeing as many concerts as humanly possible with your best friends. Your 30s may be about setting up a solid investment strategy, and traveling the world with your partner. And maybe your 40s are about contributing to your young children’s college funds while planning the coolest “staycations.”
In the above examples, the value isn’t necessarily seeing concerts or traveling. On top of building a strong financial future, the value is creating memories by experiencing life with loved ones. Define your values and what you value most, as well as identifying your goals and plans for life. Your finances are the steppingstones to get you there.
The means to the end may look different for everyone, but once you determine what you value (travel, education, family, hobbies, etc.), you can then figure out how your finances are going to help you work toward them. Remember: even when times are financially tough, it’s still possible to achieve your goals and live your values — not everything has to cost money.
Ultimately, financial mindfulness can help you work toward intentionality, spending and saving money in a way that brings you joy, and living your values with the help of your finances.
UMB personal banking solutions offer convenience and simplicity to meet all your financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle.
Boost your financial know-how and sign up for our personal banking newsletter. We’ll send informative articles right to your inbox.