Is your money management strategy actually working? Key signs you might be off track

When it comes to managing money or investing, we all feel like our way is the right way because it works for us. We convince ourselves that the financial choices we have made are the ones that work best for us.

There is no empirical way to prove the accuracy of such a belief. However, it is true that if you’re someone who runs into the same undesirable financial outcome in different stages of your life, it’s probably because you are making unsuitable financial decisions. Instead of acknowledging this, our defences usually go up and a standard approach is to say something like ‘money comes and money goes’ or ‘I know I can make it up soon’ and then carry on with the struggle. For some of us, financial volatility simply becomes a habit that we accustom ourselves to.

In reality, if poor financial outcomes are putting a brake on your plans, something is going wrong. Yes, money comes and money goes, but when you prepare and plan your finances, consciously in accordance with your goals, there is stability and growth which makes life simpler. Simpler because, with finances figured out, you can focus your energies on identifying and working on other aspects that bring true meaning to your life.

When we are still at a stage where money is scarce and savings are low, a single minded focus on increasing your savings will help. However, this is also a time when most working professionals are in their 20s and early 30s and saving is not a high priority goal, instead the focus is on spending to enjoy life. There are also those who have had early luck with their start-ups and are flush with surplus funds, then it’s not just enjoyment but also frequent risk taking that comes to fore.

Life is not linear, it does not progress as per plan and often we falter when the path in front of us changes direction without warning. Be it marriage, divorce, schooling, travelling, work or giving or any other aspect of life, money touches all. When things don’t go as planned, decision making changes and if you are not prepared, it’s the financial impact which is the primary fodder for the decision around how you will move forward. A sudden medical emergency with your parent, child or yourself, a COVID like full stop on your business, company downsizing that you did not see coming and so on.

There is a big difference in the way people with a comfortable financial cushion respond to critical life changing situations as compared to those who are more facetious and carefree with their money. It’s not uncommon for the unprepared to sink into anxiety and even depression in times of struggle, albeit, triggered by external circumstances. This can then get exaggerated into extreme turmoil due to financial unpreparedness. Take for example, COVID. A lot went wrong for several businesses, workers and professionals, all over the globe.

Along with extreme anxiety around this medically less known and highly communicable, even fatal (for some) disease, there was the issue of lockdown which basically put sudden brakes on revenue and income for many. The ones who had saved for a rainy day, prepared an emergency fund for personal finances and for their businesses, are the ones who were less likely to suffer from anxiety, even if they had to tighten their belts.

Being financially prepared meant that one’s energy and focus could be on health and family at a very fragile time in all our lives.

Money can provide you stability, provided you are able to guide it well. The first step is to understand the importance of covering your risk; the risk of the unknown. Having an emergency fund sounds boring, but it is how cash rich companies are also able to survive for the last 100 years plus, despite world wars and natural calamities.

In our personal lives, creating this emergency fund is just as important. Regrettably, our human instinct is to seek excitement which is found more in chasing return or being spontaneous with our money; neither of these behaviours support the creation of an emergency fund or even seeking out proper financial planning.

Once an emergency fund is in place you can start questioning what you want to achieve in life and channel some of your savings into investments which will help you achieve those goals. Don’t use up money you have kept aside for emergencies to start a new venture. Yes, being a risk taker sounds exciting but making calculated choices is a more targeted way to achieve your goals. There is glamour in bravado, in proclaiming that you made your own decisions fearlessly regardless (rather without thinking of) the consequences; but there is no joy in bankruptcy.

Money is a deeply vulnerable subject, personal money more so. No one likes to admit that they are going wrong or that they will have to change some innate behaviours if they want positive financial outcomes. Very few ask for help. In truth, money anxieties exist in all of us and we all make mistakes with our financial decisions. It is because money affects every part of our life, whether you think of it as merely an enabler or a goal, you cannot get away from it and addressing mistakes is an important transformation.

If you are able to make money choices which work in your favour 70%-80% of the time, you’re fine. But if every few years you find yourself in a life situation where your next decision is, among other things, guided by your financial readiness or the lack of it, you need help. If you need to alter your lifestyle unsuitably to accommodate a necessary change in life circumstances, you are probably financially ill prepared. If your first port of call for big life changing choices is taking a loan, well, you do need help managing your finances.

There is a thrill in living life on the edge of financial uncertainty, but it’s unhealthy to confuse that with risk taking. Ask for help, be better prepared and ready to transform; not just for your today but also for your desires for tomorrow.

Lisa Pallavi Barbora is a financial coach and founder of moneypuzzle.in