All of us dream of a future where we are better off in our relationships, achieving our professional and financial goals, and ticking off the items on our bucket list.

And yet, making these dreams a reality takes hard work. 

Our latest eBook, the Tao of Personal Finance, offers you guidance on how to get to work on realising your financial dreams.

One of the simplest, yet toughest ways to get started is to implement a data-driven approach to improve your finances:

Define, measure, analyse, and improve 

Tough - because flying blind and hoping for the best is no longer an option. 

Simple, because you manage to break down your HUGE dreams into small, achievable steps.

The Gap Between your Dreams and Reality

“If you aim at nothing, that’s what you’ll get every time.”  

Zig Ziglar, Specialist In Personal Development Training, Providing Coaching For Presentation Skills, Sales, Small Business Owners, Speakers etc.

Let’s take your income and expenses as a starting point. 

Payday is thrilling, offering the chance to splurge on a few luxuries, some fun nights out, and delight in a positive bank balance. But sooner or later, your cash will start running out and you’ll start counting the days until the next pay day.

While you’re likely to have tons of fun at times, you’re unlikely to be any closer to saving for your dream holiday, a house deposit, or liberating yourself from your college debts.

Applying a Data-Driven Approach to Your Personal Finances

Now let’s close the gap between your dreams and reality by implementing a data-driven approach.

1. Define 

Take stock of your fixed expenses by adding together all those non-negotiable payments, including your direct debits, standing orders, rent/mortgage payments, insurance, gas and electricity, council tax, debt repayments, and investment contributions. 

Deduct that number from your take home pay, and you’re left with your disposable income. 

Now comes the fun bit: make a wish-list of your financial goals and dreams. Break them down into short-term goals (an exotic holiday in a year’s time), medium-term (putting down a deposit on your first home within 5-years), and long-term goals (buying a yacht and sailing off into the sunset). 

2. Measure 

Next up is to carry on as usual, well, almost! You want to measure your running expenses - those daily, ordinary and necessary expenses over the period of a month. 

Here it’s important to save your receipts instead of relying on your bank statements alone. Think about it: your statement might tell you that you spent £30 at the supermarket, but it won’t tell you whether it was spent on essential household items, food stuff, or a new summer’s blouse that caught your eye...

3. Analyse

Yay, it’s payday! But hang on just a moment! Once you’ve reached the end of the month it’s time to take out that stash of receipts and dedicate an hour or two to categorising your running expenses.

How much was spent on essential items like food, compared to non-essential expenses like another pair of running shoes or restaurant meals?

By categorising, you can identify the ‘black holes’ that your money is disappearing into. Perhaps you’re not willing to cut your gym membership, but you’re willing to limit your ‘nights out’, or set a budget for each activity. 

One person’s luxury is another person’s must-have, and it’s entirely up to you to prioritise your expenses according to your own goals and values.

That said, the next part of your analysis might have you look at your running expenses in a different light:

How much of your income is left to save towards your financial goals and dreams?

The answer to that question might be a bitter pill to swallow, but don’t lose heart! You’ve only just started on your journey to financial sovereignty. 

Simply knowing where you stand in your finances (financial self-awareness) is one of the keys to choosing to spend wiser, and more aligned with your values and dreams. 

Another key is to set aside portions of money towards each of your financial goals, AND DOING SO AS SOON AS YOUR PAYCHECK CLEARS. Not kidding!

Your analysis will tell you how much you can safely set aside for a start. The amount will determine whether you start off by popping it into your piggy bank, a savings account, or if you are able to start up an investment account with a set monthly contribution right away.

4. Improve

Now that you’ve defined your financial means, your dreams and goals, and you’ve taken stock of your financial activity over an average month… the challenge begins!

Tell yourself it’s a reality TV show and you’re your only competition! Remind yourself of your goals and dreams by writing them on your mirror, a post-it note on your desk, or spelling it out with alphabetic fridge magnets. Whatever you do, turn it into a fun challenge instead of a chore.

To further motivate yourself as you go through the month, tally up your running expenses on a more regular basis - perhaps weekly. 

Running ahead of your budget by week 1 will warn you to pull the reins in. Had a particular thrifty week? Celebrate it as one of the small successes that will add up to helping you achieve your long-term goals.

Rinse and Repeat

“There is only one way to eat an elephant: a bite at a time.”

Desmond Tutu, South African Anglican cleric and theologian known for his work as an anti-apartheid and human rights activist.

By repeating the Measure, Analyse, and Improve steps of this process, you will gradually align your running expenses with your priorities. Over time, you are bound to increase the amount of money you have available to contribute to your various savings and investment accounts. 

Though it will take time and effort to implement this data-driven approach, your future self will love you for putting in the work now!

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