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This is a slightly wordy post on the subject of Personal Finance, and is the start of a tough personal journey from slight financial chaos to financial order and harmony - what I like to think of as Financial Mastery.

Personal Finance is an area that all of us, no matter what age, race or gender have to deal with. It’s an area of life that is often ignored or shunned for being too complicated, too unwieldy to manage or simply too depressing - an area where a lack of organization, lack of understanding, procrastination and disorder can have soul-destroying consequences. Despite an abundance of information and products on the market, it frequently seems like there is bewildering array of information to take in, countless decisions to make and occasionally very difficult truths to face.

Despite having read a lot of this information over the years, I am still in a financial situation that I am not happy with - I have more debt than I feel comfortable with, my spending is often a little haphazard and unplanned, and my savings are not what they should be for a man in my position. I have been through many ups-and-downs over the years and I’ve never really settled into a sustainable financial equilibrium for more than a few months at a time. Don’t get me wrong - I’m sure that compared to some I am in financial paradise, but for myself I have had enough and have decided to do something about it.

And as well as doing something positive about my financial situation, I am going to be blogging about the lessons I’m learning so others can follow along and hopefully gain something on the way.

Facing the Facts

The first step for me has been accepting the fact that my finances are not in the condition I would like. As I said above - I spend a bit more than I should, owe more than I should and haven’t saved as much as I perhaps should. I try not to berate myself with “should’s” too much, as they are not positive statements, but in this case I have had to recognize that I am not in the position I wish to be.

No matter where you are on your financial journey, the first step is always to accept where you stand - You can’t plan the best path to get somewhere, if you don’t understand where you are right now. I didn’t particularly like doing this, but it was a necessary step to take.

At this point, I don’t want to worry about a Net Worth Statement (where you work out exactly what you have as assets and liabilities) - I don’t believe that for me it is the right first step, although for some extreme debtors it’s crucial. I fully intend to prepare a Net Worth Statement, and will more than likely write about it, but for now the most important thing to consider is my relationship with money.

A Relationship with Money

I believe that understanding your relationship with money is far more important than the specifics of how much you have coming in, what you pay out and where you spend your money. These things all have a critical bearing on financial security, but they can take time to make a positive impact upon - the one place you can effect real change right now, today, is to begin to understand how you feel about the role of money in your life.

I began by asking myself these questions:

• Do I like money?
• Do I feel comfortable spending money?
• How do I see money within the framework of my life?
• How do I rate my ability to earn money?
• How important is earning money to me in a social sense?
• Do I see myself as being rich or being poor?
• Do I constantly think about money (or lack thereof)?
• What would I do if I suddenly had all the money I wished for?
• What would having lots of money bring me?

As I worked through these questions, and others like them, I began to build up a picture of my relationship with money. I started to realize that I saw money, and more specifically spending money, as a route to instant gratification - If I was down and I had money to spend on something that would brighten my day, I would. If I was very down and wanted something big to cheer myself up, I’d spend money I didn’t have to brighten my day.

I also realized that to me money was a valuable, tangible social status symbol - due to having very low self-esteem for a long time, earning more money than some of my friends gave me an ego-boost; I could “impress” my friends by spending money on dinner, or treating people to nights out or gifts. Spending money helped me fit in socially, as I fervently believed at the time that I was worthless if I didn’t have money.

Finally, I realized that I didn’t feel like I had to work particularly hard to earn money - I work as computer programmer which, as well as being something I enjoy immensely, is quite a well-paid field. I have always worked hard, but it never felt like back-breaking sacrifice so I didn’t value the end result of that effort as much.

Putting everything together, its clear to see that my financial attitude for a lot of my life has been “easy come, easy go.” I could earn money fairly easily, and without undue stress, so I felt justified in spending it just as easily, with no conscious regard for the consequences.

All these findings have really galvanized m desire to improve my financial situation, but the real catalyst is my changing personal situation - I have recently moved in with my girlfriend, and I want to ensure my financial situation allows us to live out the future we have planned.

A Clear Path Forward

Having built up a better picture of my relationship with money, now and in the past, I am in a position to blaze a trail forward which is more in keeping with how I would like my finances to be run. I have identified several key steps that I can begin working on now to improve my financial situation, starting today. Looking at the list, you may see some areas for improvement yourself.

1. Effectively managed spending - I am going to start tracking my spending as of now. I have created a simple form for the week, which I can fill in on a daily basis with all the expenses and expenditures that I have as I go through the week. I have also included a section for notes, where I can track the details of the day - if I’m feeling happy or down, whether it was a friends birthday that caused me to splurge, or whether I had to shell out to repair a broken window.
2. Understanding my outgoings - After my incidental spending, the next main area of financial management is to list out and understand my frequent outgoings. Start with the big, important ones like your mortgage and loans, and then gradually work your way down to the smaller ones. Make sure to check your internet banking and bank statements to identify the small ones and the infrequent ones - I got caught out with my breakdown cover renewal, which only comes out annually.
3. Understand my Debts and Liabilities - On the back of a list of my monthly outgoings, I can see where my debts are and what I spend on them in a typical month. By doing a little research I can mark against each debt the projected rate of interest, to help clarify exactly what my debt liability is, and how effective or ineffective my payments against that debt are.

There are dozens of other ideas and tools you can use to help you make financial decisions and understand your situation better - some people would advise you do far more research than I have done before you embark on a financial revamp. I however, am a big advocate of the Ready-Fire-Aim approach, and realized that money was going to be spent and outgoings would leave my bank account, whether I was aware and in charge or not. I’d far rather get stuck in and make some simple changes now, with plenty of time to learn more and make improvements as time goes on, than let more of my money slip away without my knowing.

This is the start of my Quest - I understand my relationship with money better, and have identified some useful practical steps to move forward. It didn’t take hours, it doesn’t involve a calculator and doesn’t require a degree in accountancy. Just a simple shift in perspective, a little bit of positive action and I can go to bed tonight knowing I am making a genuine different to my quality of life.

I shall be following up this post over the coming months, with the lessons I’m learning as I go along. I plan on sharing any information that I think is relevant, and any tips I am implementing to make a definite impact. This is a challenging journey that I am embarking upon, and I know that by sharing what I am experiencing and what I am learning, that I will be more accountable and more motivated.
If you have any recommendations on websites, ideas or financial tips, please share them in the comments.