Processes and skills are used to effectively apply knowledge
to accomplish goals. The following processes and skills are essential
for effective money management.
When people are ready to make a change in how they manage money, they likely have assessed their current status. Assessment can range from an informal "in one's head" to a formal, exhaustive record of all spending and income and changes in net worth.
Setting or revising goals frequently occurs at the same time as assessment. Goals point toward desired outcomes (see Section Four). Goals are usually set for two reasons: a) to maintain status quo or b) to make a change. Factors to be considered in goal-setting are: Period of time for goal completion (short-, medium-, and long-term), Degree of importance, Influence of values, and fit of goals to total financial plan
Planning involves deciding on the components, the order, and the course of action. A budget is a plan since it allocates resources to meet various goals (i.e., pay rent, pay bills, save for down payment on a house, save for retirement). There are short-, medium-, and long-term planning approaches, designed to meet differing goals.
Decisionmaking goes on all the time, consciously or unconsciously. People decide how, when, where, and why to spend money. There are many "models" for decisionmaking. Steps in the decisionmaking process include: identify the problem, gather alternatives, weigh alternatives, select an alternative, take action, evaluate, and make revisions as needed
Implementing is taking the action steps identified in the plan. It is carrying out the decisions made, such as: save money each week, reduce debt, save for the future. Identifying benchmarks along the way helps in monitoring the effectiveness of the plan.
Recordkeeping provides an understanding of how money is managed. It provides information to assess progress toward goals and helps identify the need for adjustments in the plan. It details what a person plans to spend or save, provides a comparison for monitoring the plan, and provides a record of what was actually spent or saved.