3 things to do before taking on a financial commitment

Don’t spend money you don’t have – realistic financial commitments

The success of The Barefoot Investor book shows just how powerful organising your finances can be. It talk about the steps of financial commitment and how to be accountable to it. If you haven’t read the book, I recommend doing so, it’s easy to get into and somehow make the dreaded financial commitment responsibility enjoyable to read. The information isn’t ground breaking, but it’s good to hear common sense finance guidance a couple of times: don’t spend money you don’t have. Put a regular amount of your pay into savings. If in a partnership, talk about your financial goals with your spouse and make sure you have a shared vision. Invest in shares that have boring, slow, steady returns.

This got me thinking about the 3 things you should do prior to making a financial commitment. Take this example, I recently joined a program that costs $199 a month. Before signing up I did these three things:

  1. I made sure that there was space in the budget at this moment in time. This is about timing, is it right for you? Looking at your budget and other existing commitments as well as looking ahead at upcoming events and bills ensures that you aren’t biting off more than you can chew.
  2. I calculated how much I’d need to put away each pay to keep up with the payments. By breaking the amount in to smaller parts, it makes it more manageable to plan and incorporate the additional expense into your life.
  3. Before I purchased the program, I got a head start by saving up half of the first monthly amount. This way, I’m always ahead of the next payment rather than running head to head.

I hope these three things help you embrace your next financial commitment and enjoy the program, holiday, course, equipment, tool or whatever that you’ve purchased without stress.

For more flor&order budgeting ideas, check out this post.