THE STAGES OF FINANCIAL MANAGEMENT
Have you ever thought about the process of understanding personal financial management? We all know that financial management is not something we are just born knowing. Personal financial management is a process that must be learned and understood. So how do people learn to manage their finances properly? In learning to manage our finances I believe we learn in stages which we progress through much like the human growth process.
The stages of financial management
Spending some time with my toddler daughter recently has had me thinking about this process. I’ve watched my toddler daughter as she learns and reacts to everything. It’s cool to see how she learns and grows in so many areas. Her speech as she learned to talk, recognizing cues, and growing physically and emotionally. While watching her responses and the way she is progressing I have begun to realize that the same can relate to the stages of financial management. We do not begin to understand personal financial management overnight. Many of you have probably learned to understand your finances over years of experiences and insight gained through those experiences. Just like a child grows into adulthood through experiences and with an education along the way we have learned the right way to handle our money.
While learning to manage our finances we go through stages in our development just like children do. Financial management is not however something that we naturally understand. It requires an understanding of our finances and an education on how to properly handle them. Sometimes this education is provided through traditional education but often it comes after difficult lessons learned while mismanaging our finances.
Stages of financial management
Stages of development in financial management are similar to our stages of development as we grow. Most are learned through maturity and better decision-making. This does not happen naturally, it happens as we gain education, experience, and good decision-making skills.
How to recognize the stages of financial management
Baby
100% dependent on others and no responsibility. No understanding of money or financial management.
Child
In the child stage, you know that money exists. You don’t manage your own money because you have none that you earn.
Teenager
Trying to be independent and self-sufficient, making mistakes hopefully not big ones.
Ideally learning lessons through your financial mistakes help you progress to the next stage.
Adulting
Beginning to make the right decisions, completely independent, beginning to properly manage debt and income.
Mature
Working your plan consistently, you have a budget, you have savings, no debt or manageable debt, good credit, prioritize investing, savings and good financial choices.
My journey through the stages of financial management
I found myself stuck between Teenager and “Adulting” for many years. I was 23 years old and buried in debt before I even knew how to properly manage my finances. At that time I was a college student with student loans, multiple maxed-out credit cards, and poor money management skills. Then one day I met my husband as I was in the midst of this financial mess that I had created for myself. I was working multiple jobs just to pay my bills, attending college in hopes of a better-paying career someday, and just feeling overwhelmed. No matter how hard I worked and how much more money I made I never seemed to be that much better off. One evening I confessed to my husband who was my boyfriend at the time how much debt I had. Instead of running away and judging me for my poor decisions he kindly explained to me that my budget was the issue and not so much a lack of income.
Growing up I never heard positive things about money and had not learned to properly manage my own money. I had not been taught the value of saving, how to pay bills, balance my checking account, or create a budget. I witnessed many arguments between my parents regarding my parent's overspending and the financial stress my Dad was feeling as he tried to manage their budget. I did not understand the correct response struggling to pay my bills and was handling my situation the best way that I knew how. After that conversation with Jason, I still struggled but I finally recognized the problem was not just the money I was not making. The real problem was my lack of understanding of managing the money that I was making.
Sacrifice vs. making the right financial choices
After my conversation with Jason (my husband), I began to understand the actual process of financial management much better. I realized that there was a process that I needed to follow to finally decrease my debt and improve my future. I would like to tell you that at this time I progressed to the next stage immediately. Sadly I did not progress that quickly I began to learn and understand but still resisted some of what I knew needed to happen. At this time I entered a period of knowing what was best but often choosing to do what I pleased. Just like many teenagers often choose to make decisions based on feelings instead of reality. I would spend years taking two steps forward and one step back as I tried to halfheartedly do the right thing financially.
While in my mid-twenties after struggling for so long to finally get my finances under control I finally began to make the right choices. I was finally tired of the lack of progress, the accumulating debt, and no money at the end of the month. I made multiple changes that year to my life which included focusing on repairing my debt and beginning to save.
What did I do to finally break the cycle and progress to the “Adulting” stage?
I created a 401k which I had put off for years because I never thought I had enough money to invest even a little each paycheck. Years later as I began to do better I also created a Stash account where I also invest on a small scale in some individual stocks. I had always wanted to understand how investing works and I am so proud of all that I have learned since I began. It is possible to begin investing with very little experience and to teach yourself how.
That year I finally focused on saving more money and building an actual savings account. I finally was successful at this by completing a 52-week money challenge and slowly saving money that I did not touch all year.
I progressively began to pay down debt smallest to largest. This is not always the preferred method of debt payoff but worked the best for me since I was able to see more progress quicker as each debt was eliminated.
I stopped using credit cards and began saying no to myself and others when I simply could not afford something I did not purchase it
I started seeing small progress and began to feel excited by my progress. This fueled my drive to continue doing the right thing and walking away from the lifestyle I had once lived.
Soon after entering the Adulting stage and moving forward, I began SavingJoyfully.com as a project to help others learn as I had through my journey. I found that I gained encouragement from an interest in helping others learn to better manage their money. At that time I also discovered a wonderful community of personal finance enthusiasts on Twitter that helped drive me to learn more about my finances and grow even more.
How I finally progressed to the mature stage
Today I believe I can confidently say that I have safely entered the mature stage. This has not come easily but has finally happened after a lot of years of poor decisions and lessons learned. I look back on the poor decisions grateful for the lessons and happy that I have finally found my way to the place that I am today.
What the mature stage looks like for me
A realization of my past mistakes and a desire to overcome these
Sacrificing my desires at times to make better decisions for my future
Increasing savings
Increasing investments
Decreasing debt
Making tough career choices to earn more money
Not increasing my expenses with each pay raise received
Saying no to frivolous spending
Discovering new ways to be frugal
A word of warning about the stages of financial management
The stages of financial management can change based on your decisions and actions. A person can move from the mature stage backward instead of moving forwards. They can do this quickly by altering their behaviors and by making choices of many kinds that affect their financial life. Accumulating unnecessary debt, spending more than they should, ceasing to follow a budget they have set up, taking on financial responsibilities they did not previously have, etc. I recommend taking a hard look at your financial progress monthly and reevaluating your priorities if you see your finances begin to change.
Life happens to leave us with new challenges all the time. As we learn and mature we find innovative ways to deal with these challenges. Sometimes a challenge will bring us back a step financially through no fault of our own. How we choose to handle those situations shows the growth and true reality of where we are in these stages. If you find that you have regressed it is not too late to get back on track. Growth and maturing are a process of daily choices and a result of years of continuous learning. You are only as mature as the lessons you learn to apply and the daily decisions that you make.
