Do This Simple Exercise to Build Better Money Habits in 2024, Says Financial Expert A majority of Americans are living paycheck to paycheck — and a strategic shift in spending could help.
By Amanda Breen Edited by Jessica Thomas
Key Takeaways
- Chelsea Fagan of The Financial Diet emphasizes the importance of comprehensive budget consideration and trade-offs in major buys.
- Fagan advises a spend-tracking strategy to align expenses with personal values.
If you're planning any major life purchases in 2024 — maybe a first home or new car — it's time to take a good look at your finances to make sure you're in the best position to spend without overextending your budget.
Although the purchasing process will vary depending on someone's individual financial circumstances, most Americans (more than half, to be exact, per CNBC) are living paycheck to paycheck — and will have to take on debt to afford some of life's biggest buys this year.
Entrepreneur sat down with Chelsea Fagan, CEO and founder of cross-platform media company The Financial Diet, to learn more about how people should weigh those major purchasing decisions.
Image Credit: Courtesy of The Financial Diet. Chelsea Fagan.
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Fagan's own personal finance journey helped her become an expert on the subject. When she landed her first salaried job, she vowed to mend her "very negative relationship with money" and "ruined credit score." So, in 2014, she used the platform she already had as a writer to document the experience on her blog, ultimately growing it into the company she helms today.
"We all have to make different major purchases, but they're not all created equal."
According to Fagan, there are some important steps to take when considering a significant buy. First, get a sense of the long-term value of the investment. "We all have to make different major purchases, but they're not all created equal," Fagan says. For example, a home is likely to appreciate in value, but a car is not.
But you also have to consider the flexibility you want in your budget — and how the purchase will impact that going forward, especially in high-cost-of-living areas.
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"A lot of people don't think about their big monthly expenses as fitting into an overall budget," Fagan explains. "They think of it as a standalone number. But it's extremely important to remember that each additional hundred or whatever amount of money is going to that big initial purchase is going to have a huge impact on the rest of your spending."
Using a budgeting app that maps 100% of your spending, like Kelley Blue Book My Wallet, can be a great way to stay on track and keep your big-picture budget in mind.
"Every single purchasing decision is a trade-off."
Additionally, Fagan notes that "every single purchasing decision is a trade-off." A slightly less expensive home could be farther from work, which means a longer commute and more money spent on gas.
Education is another major purchase some people might be navigating in 2024 — and Fagan cautions young people against investing in a program without analyzing its potential return in full.
"I don't think that young people are taught to interpret the value of a given degree in the way that they would another investment," Fagan says. "If you're going to buy a home, for example, you're typically going to go through like, What area is it in? What are the historical trends? What's my interest rate? How much am I likely to gain in equity over the next five, 10, 15 years? But usually, because it's teenagers making these decisions, people don't typically make those same analyses when it comes to their education."
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"There's so much mindless consumerism that works its way into our spending."
Fagan and her team don't subscribe to the belief that you shouldn't spend on anything until you're debt-free but stress that any purchase — big or small — should align clearly with your values.
And a simple exercise can help you accomplish that: Go through all of your spending on credit card and bank statements for the last three months and highlight any purchases you don't remember making.
"A lot of us typically spend on things that don't have value to us, especially when it comes to ride-sharing, food delivery, going out for drinks, shopping for fast fashion, buying random stuff at the holidays," Fagan says. "There's so much mindless consumerism that works its way into our spending that we don't even notice is happening. And when you think about the purchases and the spending habits that are actually valuable to you versus the ones that you don't even remember, it's always a huge wake-up call to look at our purchases and say; I spent $65 on that — I literally don't even remember it."
The activity is a sort of "psychological practice" that can help lay the foundation for healthy money habits in the long term, Fagan says — setting you up for financial success in 2024 and all of the years to come.
