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Doing the 'right thing' with your money 'doesn't matter if you don't do this first': Behavioral finance pro

"What's more important is making intentional decisions that align with your honest and true priorities."

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How personal is personal finance, really? It depends on who you ask.

Some experts, such as "I Will Teach You To Be Rich" author Ramit Sethi, say that focusing too much on your personal situation can overwhelm you, leading to paralysis when it comes to making choices about money. "Most of us at a high level have very similar financial goals," he recently told Grow. "We want our money to work for us, we want to be safe and secure, and we want to have a little extra money so we can spend it on all of the things we love."

Indeed, the tried-and-true rules of personal finance are there to help most people reach these sorts of basic goals. But important financial decisions necessitate a certain level of introspection, too. Experts in behavioral finance say that applying the rules without an understanding of your priorities and financial habits can erode the effectiveness of any classic strategy you may be looking to employ.

"There's always that 'right' thing to do with your money, but that doesn't matter if you can't stick with your plan," says Martin Seay, a certified financial planner and chair of the Personal Financial Planning Department at Kansas State. "What's more important is making intentional decisions that align with your honest and true priorities."

Here are three questions experts recommend asking yourself when figuring out whether a financial decision is a good choice for you.

Does this financial decision align with my values?

In her book, "Maximize the Return on Your Life," behavioral finance expert Shari Greco Reiches posits that financial decisions come with two factors that must be considered in concert. "There's the financial side of a decision, but then there's the soft side — the value side," she tells Grow. "Before we do anything, we have to articulate what our values are. Your highest priority may be health, or community, or philanthropy, or family. You need to make sure any financial decision aligns with your values."

Reiches challenges readers to narrow a list of 100 values down to a top five. These can form a framework on which you can build your financial life. Without a list of your highest priorities, she says, you can end up making decisions that lose you money or that see you spending it on things that won't meaningfully improve your life.

"Have you ever gone to the grocery store without a list?" she says. "You end up buying things you don't need, or you forget what you were there for in the first place."

Having your values straight can allow you to ignore financial advice, even the tried-and-true stuff, that won't enrich your life, she says. Take the standard advice that it's better to build equity by paying down a mortgage than to pay rent to a landlord. For many people, this may be the case, says Reiches, but it may not align with your values.

"Maybe you value flexibility," she says. "Maybe you temporarily need to be able to live close to an ailing family member. In those cases it may be better for you to rent."

Can a rule be bent to meet my needs, rather than broken?

Financial rules can seem hard and fast, but they can be bent or customized to fit your needs. Take the classic 50-30-20 rule, which prescribes allocating 50% of your income to essential expenses, 30% to "wants," and the remaining 20% to saving, investing, and accelerating debt repayment. Trying to fit your financial situation into those guidelines sets you up for failure, says Reiches.

By considering your values along with your particular financial situation, you can come up with a spending plan you can stick to.

"If you have high student loan debt, you may have to up the savings to 25% and cut back on the wants," she says. "But say you value going to shows, or having Starbucks every day with your lunch. Maybe you need to find ways to cut back on other wants. Maybe you need to get a roommate to reduce your living costs."

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No matter what, you're likely to have to make sacrifices. But by identifying and prioritizing the things that are important to you, you're more likely to stick to the plan, and less likely to break a rule that will get you in trouble, says Seay.

"You still need to be looking at your cash flow every month and determine whether it's consistently positive or negative," he says. "You can get into spending too much or too little on certain categories, but at the end of the day, if you're cash-flow positive at the end of every month, you're going to be fine."

When can you 'reflect and revisit' your choice?

Seay works with a number of recent medical school graduates, who come with a unique set of financial circumstances: They earn relatively modest salaries for the first few years of their careers, followed by more robust incomes later on.

In these early circumstances, Seay says, it's OK for these folks to prioritize having cash to live on over more financially savvy maneuvers such as, say, aggressively paying down their student debt. "The problem with these people isn't whether they're going to stick to the budget early on," he says. "It's, when their income grows, are they going to change their behavior?"

You need to make sure any financial decision aligns with your values.
Shari Greco Reiches
Behavioral finance expert

People who begin to earn more money as their career progresses are subject to a phenomenon that Preston Cherry, a CFP and founder of Concurrent Financial Planning in Green Bay, Wisconsin, calls "lifestyle creep." To avoid falling into this trap of spending more as your salary increases (to the detriment of other financial goals), Cherry recommends keeping a journal of your short-term and long-term financial priorities.

"Sitting down, meditating, and writing in a quiet environment gives you space with your thoughts without digital or peer influence," he says. "Doing this from the very beginning gets you off to a good start. And just like in a marathon, getting off to a good start lets you settle into a pace, which will limit readjustments for the rest of your journey."

When you do have to readjust, say, following a major financial event in your life, going back to your original priorities and perhaps updating them can help keep you on track toward your goals. "Reflect and revisit," he says. "That's the 'it' factor when it comes to sticking to a plan. It allows for flexibility and will keep your money mechanics in line."

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