What should all young people know about managing money/personal finance? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Mary Daly, EVP & Director of Research at SF Fed, on Quora:

Financial life is about trade-offs--trading what we want today for what we want tomorrow. Very few of us have the luxury of unbounded spending. And spur of the moment choices can often produce a financial hangover. So the most important thing is to be thoughtful and purposeful. Here are 3 tips to make sure your financial trade-offs align with your goals:

1. Know what's important in your life. Do you value time? Possessions? Stability? If you don't know yourself, it can be very challenging to make a financial plan. Begin by doing some mental accounting:

This is the starting point for knowing the tradeoffs you're willing to make and the foundation for any financial plan you create.

2. Create a plan that's actionable, sustainable, and flexible. Actionable means you are doing something regularly with the plan. For example, meeting monthly or weekly savings goals or trading one type of spending for another. Sustainable is about recognizing that you want to be happy every day, not just the day you consume what you've been saving for. Plans fail when they are too hard to maintain. Flexible is about being willing to alter your financial plans as your life goals change. A cool apartment may be top of mind today but matter less if you want to start a business, start or expand a family, or take a cool job in an expensive city.

3. Do a personal finance check-up once a year. Even the best plans need to be checked from time to time to see if they still fit your aspirations. In Economics, we call it re-optimizing and doing it regularly ensures that your plan remains solid and aligned with your goals.

Ultimately, personal finance management only works if you know what you're striving for. So, get to know yourself and a sound plan will easily follow.

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Published on: Aug 24, 2017