No one is entirely rational when it comes to money. We don’t create and follow a budget or save something every paycheck though we believe it would be in our best interest. We know we need a financial plan but put off the work involved; somehow it never happens. We spend too much out of recklessness or exuberance, or too little out of guilt. Our money behavior often causes shame.
It’s worth thinking about money as something with which you have a complex relationship. Your money (and more broadly your personal finances) is not a fixed entity, but rather a complex of data points, challenges and opportunities you circle around, interact with and have feelings about. You make decisions about money that impact your financial situation and these impacts in turn reciprocally affect your feelings and future behaviors. And it’s a relationship that evolves over a lifetime.
Here are three key things to know about the psychology behind our personal relationships with money:
Emotion plays a huge role.
Anxiety and avoidance create a vicious cycle.
Psychologically, you can’t entirely escape your family and your past.
How we think about money determines what we do about money. We are what we are today as a result of the choices we made yesterday. Our choices all grow out of our inner beliefs and thought processes. This is as true with money as it is with any other aspect of life.
One of the most important financial truths for anyone to grasp is the fact that it is not how much money we earn or even how much we spend, but whether we are in control of our money that matters in the long run. There are plenty of doctors and lawyers in financial trouble. There are plenty of secretaries and nurses who are prosperous.
The most incredible truth is that overspending as little as ten dollars a month over twenty years at average credit card rates can produce the $8,000 to $10,000 of debt which is common to most families in America today. The average interest being paid on that debt is over $93.00 per month.
Perhaps that doesn’t sound like a big deal to some folks. But that $93.00 invested monthly in a whole stock market index fund for 40 years would on average produce over a half million dollars. If you realize that over spending only a few dollars a month leads to catastrophic debt while living within your means and saving a little consistently over time can make you rich, you can commit to change more easily.
Motivating ourselves to take the steps we need to make in order to get in control of our money becomes possible only when we see that it is indeed really possible for us to be financially successful. Most people never really try because they don’t believe they can; they have a negative money mindset.
There is nothing to keep us from choosing to discover our abilities and committing ourselves to begin working toward our goals in this area today. Then, if we remain persistent and patient we can and will succeed.
So financial success begins when we discover how little change in our spending/saving habits is required for financial success and then grasp the importance of control as the foundation for success. The question we need to ask ourselves is,“In the light of what I now know, what will I choose to do?”
