Understanding the Cause and Effect Behind Your Financial Actions (and Inactions)

Do you ever feel like your financial circumstances are out of your control? Like they’re just happening to you?

Do you always feel like your financial circumstances are happening to you?

Whenever we’re knee deep in circumstances we’re not sure how to resolve, it’s easy to feel like our lives our careening out of our control. Every additional bump in the road makes the situation feel that much more impossible and we’re left nearly paralyzed with fear. It’s in these scenarios that we forget the most important thing:

Even in the most difficult of circumstances, we have control. We have the ability to decide how to move forward – in fact, we have the ability to move forward. But not until we recognize the very important fact that we always have a choice.

Even if the path is hard, even if the path is slow, you can decide what direction to go in. That’s why it’s so important to understand the active role you have in your finances – and the cause and effect of your actions and inactions.

Getting Into the Driver’s Seat in Your Finances

The absolute best thing you can do in your finances is to get out of the backseat and into the driver’s seat. While that may seem impossible (you can’t erase the past and you can’t prevent emergencies from happening), you’ll realize that it’s not when you look at things a bit differently. Every present and future choice you make impacts the outcome, even if you can’t change what’s already happened or even what will happen.

So get in that driver’s seat. While you may hit storms or bumps or debris in the road, if you’re in the driver’s seat then you decide how to stay the path, correct the path, and keep moving forward.

Start with a Spending Plan

How many times have you looked back at your last month’s spending and thought, “Where did all my money go?”

It’s happened to me more times than I care to admit.

That’s the very picture of riding in a car with no idea of where you’re going. But if you get in the driver’s seat and arm yourself with a plan – a map for your money – then you never have to be in that “what happened to my money” position again. That’s where the spending plan comes in.

A spending plan is a roadmap for your money. It allows you to decide where you want your money to go ahead of time and then holds you accountable to that decision. While some may think a spending plan could be restrictive, it’s actually the most empowering thing you can do. Creating and following a spending plan means you decide where your hard-earned dollars are going to go. What could be more empowering than that?

Think about it this way, your income is the only thing that actually restricts your spending. But a spending plan is how you can make the most out of what you have to work with.

It’s pretty simple to make a spending plan. To help you make a plan that accounts for monthly bills and expenditures and irregular or unplanned expenses, try this spending plan worksheet. As you work on the sheet, you’ll start to notice if there’s money leftover or if there’s a deficit. More often than not, we think we have more money left over at the end of a month than we do – it’s in really seeing the numbers that our actual amounts become clear. The end goal is to keep working with the numbers until they balance out to zero (meaning there’s no deficit and you already allocated to  savings).

Why is it so important to find that balance of zero? Because it’s too easy to buy another lunch, grab an extra coffee, have an impromptu shopping trip, or order that last-minute item on Amazon with the extra dollars we leave in our bank accounts. Add all of these small factors and suddenly there could be hundreds of unexpected dollars spent. Sound crazy? Just add up the transactions on your previous month’s credit card statement – you’ll probably be surprised.

It’s human nature to nickel and dime ourselves. We all do it. It’s just too easy to grab another thing and another…but your spending plan can protect you. Your spending plan keeps you on the road you intended to go on. Your spending plan makes sure you don’t make that right turn and stay on the path you set out for. That’s not to say you won’t sometimes make mistakes or veer off path (because this is going to happen occasionally no matter how well-intentioned we are), but it means you’ll know quickly how to get back on track.

This is the definition of financial control.

Setting Goals

Here’s the thing about a roadmap – if you have no destination in mind, then there’s no way to draw the map. That’s why it’s so important to set goals. But you don’t want to set too many goals at one time because that can be overwhelming and prevent you from starting the car.

When setting your goals, understand that there’s a bigger picture at play and that you’ll be revisiting your goals and adjusting them as you go. Maybe today you really want to save up an emergency fund, but in a year or so when your fund is stocked you’ll want to start investing what you earn. Start with the goal of building an emergency fund and focus on that. When you reach that goal, draw a new map. This is a process that should go on for the rest of your life – because the minute you stop, you’ll start to lose track of your money all over again.

Have fun when setting your goals. Don’t think of this so much as a thing you have to do, but instead as something you get to do. You’re in a position to decide your financial future. And that’s pretty awesome! Think about the life you want now and the life you want five, ten, twenty years from now. Then think about the goals you’d like to set to help you get there and start building a spending plan to help you make it happen. I should note that this all sounds very easy – but that doesn’t mean it will be easy to execute on. The concept is simple, but the actual doing is sometimes hard. If you find yourself struggling, that’s okay! It’s just a part of the process. The most important thing is that you keep trying and keep moving forward.

Keep Your Eye on the Map and Remember Why

When you’re on the road to your financial future, you’re going to see about a million shiny objects. You’re going to want to take a break. You’re going to want to turn off to just “try one thing.” Sometimes that “one thing” can make sense – turning off when you’re hungry or tired and need nourishment for instance – and the spending plan can help you make that determination. Does that one thing help you reach your goals – or indirectly help you by improving your life? You decide. But keep your eye on the map and the destination and you’ll be able to differentiate between the turns that make sense and the turns that are simply distractions.

Remember what you’re doing this for. Remember how this will help you lead the life you want. And always, always remember the why. When you identify your goals, write out the reasons for why these have become your top priorities. Write out how you feel not being there yet. Write out how you felt when you weren’t in control. Having that to revisit will keep you focused and allow you to remember why it’s so important to be in the driver’s seat.

You’re not doing this for anyone else but you. You shouldn’t do this because I’m telling you to. You shouldn’t do this because you feel like people expect you to. You should do it for you. Do it for the life you want.

Above All Else, Remember…

In the midst of a financial challenge (or multiple financial challenges), the easiest thing to do is become paralyzed by the situation. Don’t let fear or frustration paralyze you. Remember:

Inaction  = stagnation (or worse, backsliding)
Action = problem solving and growth

Every single thing you do or don’t do has an effect on your financial future – so why not choose to do?

Image Credit: Jon Ottosson

Author: Shannon

Shannon McNay is personal finance writer who loves to talk about the emotional side of personal finance. Her work has been published in Business Insider, DailyWorth, Huffington Post, Lifehacker, ReadyForZero, Yahoo! Finance, and more. You can follow her on Twitter @shannonmcnay.