One of the things I’ve come to understand as I’ve written about personal finance for several years is that there is no one “right” way to do anything. For the most part, it’s about coming up with an approach to personal finance that works for you.
In many cases, your approach to personal finance depends on your own priorities, as well as your current situation and future goals. While there are some basic truths to fundamentally sound finances — things like earn more than you spend, and invest for long-term wealth-building — the reality is that how we accomplish financial success is largely up for grabs.
Judging Others Based On Your Priorities
In the past, I’ve run into the pitfall of judging others based on my own priorities. I think spending money on something is silly, so it must be. However, the truth is that we all like different things, and we all find different things important. There are probably people who think I’m stupid because I like to spend money on travel and eating out. That’s how I like to spend my money, but it may seem silly and unnecessary to you. (Well, it IS unnecessary, but if I’m not going into debt for it, all my other financial needs are met, and it’s what I like, I don’t see anything wrong with it.)
Rather than judging others based on your own priorities, it makes more sense to focus on what you’re doing to make your own lifestyle preferences a reality. There’s no reason to look over someone else’s shoulder. If you don’t care to live their lifestyle, don’t bust them for it; just arrange matters the way you want for your own finances.
What’s Your Approach to Paying Down Debt?
There’s also a lot of debate about paying down debt. What’s the “best” way? Once again, I think it’s largely up to what works for you. While the debt avalanche will definitely help you save money and probably reduce the amount that you pay overall, the reality is that not everyone does well with this approach.
Some people really do end up thriving better with Dave Ramsey’s “debt snowball.” For some, paying off debt at an even slower pace, allowing them to make fundamental changes to the way they approach money and stick to those changes, makes sense. In reality, if you are moving forward and making progress, that’s better than nothing.
You have to decide what’s more important to you — paying off your debt faster while paying as little as possible in interest, or maintaining your lifestyle as much as you can while slowly paying down debt — and then accept the consequences that come with your choice.
Be prepared, though; sometimes those consequences are higher interest payments, and you may have to work longer before retirement or you might end up with some other costs.
Do You Really Need a Budget?
This is my favorite debate of all. There are so many different approaches to budgeting out there, from envelopes to the zero-based budget. My approach is to not really take the budget route at all. Instead, I figure out my priorities, and then make sure those are funded. So, instead of saying I’m going to spend so much on entertainment and so much on groceries and so much on gas for the car, I instead figure out what has to be covered in order to meet my goals. Retirement account contributions, the mortgage payment, emergency fund contribution, charitable donations, and the things I find most important are accounted for.
Then I just spend the rest until it’s gone (or if there is anything left it is carried over to the next month or invested). This means that I have to pay attention to cash flow and track my spending, but it also means that I don’t have to worry about what category the money is coming out of.
Budgeting really relies on your own style, and how you manage to keep from overspending. There’s nothing wrong with budgeting — and nothing wrong with doing it differently from someone else.
The key to personal finance is deciding what works for you, and then applying those principles in a way that will help you achieve your goals.
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