How to change your financial situation?

After checking your financial situation (check our this blog to check your financial situation), you might want to change your financial situation so that you can improve better. How can you change your financial situation easily?

There are 3 elements to be considered when we come to assessing our performance. The outcome is the results that we want. In financial term, we want to improve our finance, e.g. increase our passive incomes, increase our net worth. The middle ring (the process) is about how and what we do to get the outcome we want. If we want to increase our passive incomes, we need to add in more income sources. If we want to increase our net worth, we need to save more, invest more and spend less. These are the “how”. What about the “what”? Are we able to do the required action? Let’s review the action building.

Do you know that one study determined that over 40% of the “decisions” we make every day are not really decisions. They are habits. If you build enough good financial habit, i.e. save more, invest more or spend less, you will find that your financial situation will improve.

Never underestimate the small improvement due to the good financial habits. Based on James Clear’s research, if we can improve 1% a day, we get to improve 37.78% after a year. However, if our net worth become worse 1% a day, our net worth will be nearly 0 after a year (see diagram above).

So, aim to improve your financial habit every day. Aim small so that you can achieve small success everyday. For example, if you need to save 20% a month of your salary, you only need to save 0.6% a day. If you need to save RM 1,000 a month, you can start saving RM 34 a day instead. This figure is smaller and easier to manage and achievable.

The inner ring is the identity. It is the value and the belief that you have on finance. This can be harder to change unless you have decided to change. If you aim to be rich, you must first believe that you can achieve that. If you want to save more money, you need to believe that saving is important to secure better financial future. If you do not have the supporting belief, it is hard to change. For example, if one does not believe in saving, you can expect that he will spend away the money when he has money in the bank. Hence, the 2 elements that can affect your progress on your finance situation improvement are the identity and the process. If you want to improve your financial situation substantially, these are the 2 elements you need to work on.

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