Personal finance advisor Ramit Sethi believes if you want to better understand your spending habits, organize your finances and start saving, you need to know what your “money dials” are.
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Money dials are a simple way to determine what you think is important versus what’s actually important. They’re the main things you’re willing to spend money on — and the things that make you happiest. They’re also a great indicator of why people make the decisions they do, particularly in terms of their finances.
Are you trying to focus your finances and save for what matters most to you, aka your “money dials?” If so, here’s what you should know, according to Sethi.
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Knowing the 10 Money Dials
Sethi said that he could look at someone’s spending habits and know what their number one money dial is — and that you should be able to do the same with your own. While everyone has their own money dial, here are the most common ones:
Convenience: Anything that makes your life, well, convenient, counts in this category. This could be ridesharing, delivery, paid or free apps, or other things that automate or simplify your life.
Travel: While many people will splurge on a weekend getaway or a two-week trip to Paris, if travel is your money dial, your happy place could be traveling for months of the year. Or it could be spending more on luxury or bespoke travel experiences.
Health/fitness: This could include premium gym memberships, paid fitness apps, personal trainers, weekly massage appointments and more.
Experiences: If you live for experiences — skydiving, scuba diving, concerts, you name it — this could be your money dial.
Freedom: This money dial is all about living a life free from worry or money-related stresses. It means not having to wonder if you can afford that big-ticket purchase.
Relationships: For some people, the area that makes them happiest to spend money on is their relationships. This could mean living in a more expensive area to be close to family. Or it could mean sending their kids to a private school for the best education.
Generosity: Donating isn’t only for the rich. If it’s something that makes you happy, you likely find yourself giving to charities or leaving a larger tip to the people who need it even if you don’t have a ton of cash to spare.
Social status or luxury: This could mean buying a luxury car or designer clothes. It could also mean looking — and feeling — good in social settings. Whatever the case, it’s completely valid and could be your money dial.
Self-improvement: If spending money on things that improve your skills, knowledge, health or other aspects of life makes you happy, this might be your main money dial.
“If you had $25,000 to spend on any of the above, which would you put your money into?” Sethi wrote in an article on his website. “Your answer — the one you instinctively came to within seconds — is likely your #1 Money Dial.”
Basically, the thing that makes you most excited about spending money is your top money dial.
“Once you know your Money Dial, you can redirect your spending from other areas to spend extravagantly on your Money Dial,” added Sethi. “THIS is what true Conscious Spending looks like.”
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Changing Your Spending Habits Based on Your Money Dial
One of the great things about money dials is that you can adjust them based on what makes you the most fulfilled. Essentially, you can turn some of them up or down and adjust the others accordingly. This allows you to focus on the areas that matter most to you while cutting back on those that are just eating away at your money or happiness.
But what if you have two or more money dials? This isn’t uncommon. Sometimes, two or more of them will overlap, said Sethi. For example, you might enjoy purchasing expensive items that also highlight social status. Or you might prefer only to travel in luxury.
If possible, Sethi suggested figuring out which money dial — or category — is the primary one. Once you do this, you’ll be able to refocus your spending on that.
Why Refocusing Your Money Matters
If you look at your recent bank statements and see where you’re spending the most money, you might initially believe that’s your number one money dial. But this isn’t always the case. As Sethi pointed out, it’s possible for your spending habits not to align with your desires.
Review your budget and track your expenses to get an idea of where your money is going each month. Also look at the top money dials to determine which one brings you the most joy. If you have two different answers, it might be time to make a change.
Sethi’s Money Dial Challenge
After you figure out your number one money dial, take $500 — if possible — and spend it on something you absolutely love. It might not be easy at first, especially if your spending habits aren’t aligned with your values. But it can go a long way toward helping you lead a richer life, and understanding yourself.
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This article originally appeared on GOBankingRates.com: Ramit Sethi: 10 ‘Money Dials’ To Focus Your Finances
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