Willpower: Psychology and Healthy Finances

by Matt B

Psychology is the most important financial tool that you have.
If you are not in the mindset to become financially healthy, it will not happen. Step one is not making more money or paying down debt, it starts with a mindset and a plan. Without the desire and willingness to sacrifice, disappointment will continue. With a positive outlook and discipline, prosperity will find you.

Most financially driven books do not simply tell you what to do to achieve wealth or eliminate debt. They put you in the mindset to do these things. Without the inspirational stories and anecdotes, you would essentially be reading a textbook. Textbooks do not work for everyone. So why would the exact method that does not always work for children, work for adults? It doesn’t. That is the main reason that authors who address personal finance speak so much of the psychology of finance. Dave Ramsey, Robert Kiyosaki, Suze Orman…they all speak of mentality and motivation because it is the main ingredient for a healthy financial being.

We all look for encouragement.
It may be from friends, family, teachers, or someone that you do not even know personally. I read for financial encouragement and motivation because I have no one close to me that drives me. Often, it seems as though my friends and family cause me to spend more than I would like to. The knowledge I gain from reading pushes me to set goals for myself and educate myself further. Hence, this website. Financial Methods is my attempt to do for others, what a few have done for me. To encourage healthy personal finance habits and hopefully motivate people to improve their situation.

Without constant attention, your plans will fail. Without willingness to adjust, your plans will fail. Without strong will, your plans will fail. You get it.

You are your own worst enemy.
Do not use credit cards for purchases that you do not have the cash for. It’s so easy to preach, and so difficult to practice. Especially since you just have to have the new phone or expensive dinner or LCD television. It took me years to learn this hard lesson, and I still struggle with it even though it is constantly on my mind. Even for everyday expenses like food or gas, I think, “I do not have the cash right now, I’ll just use the credit card and pay it off”. Do not act like that thought has not gone through your head. What is the problem with this mindset? Nothing, if you are actually going to pay the entire balance when you receive the bill. If you are not, or can not, or if it is not in your budget, you just made a financial mistake.

Now that you have made this mistake, you have 2 choices:
1)Continue the poor habits.
You can keep making excuses to spend, or trying to keep a plan and then bending your own rules to satisfy your wants.
2)Adjust.
Learn from your mistake and teach yourself a lesson. Punish yourself. (I don’t mean for you to flog yourself or put out cigars on your forearms). Take away something that is an occasional treat. You like to go out for coffee a few times a week? Take that away until your mistake is paid for. I realize that it sounds silly and childish but what better way to discipline yourself than to take away a “treat”.

As I stated in my post regarding budgets, you will not get it right the first try. You may feel like you are making no progress toward your goals, so you relapse. When this happens, those who end up reaching their goals are the ones who can pick themselves up and dust off. It does not have to be a speedy process. It just requires diligence and self-discipline. The mental hurdle is by far the biggest barrier between prosperity and poverty. Once you push past the mental obstacles, the planning and executing of a solid financial plan becomes easy. It becomes a part of your daily life, an afterthought.

Whether you are 18 or 38, peer pressure does not go away. Whether it is the new phone or the new car, you will find yourself pressured to keep up with your peers. It is only the financially responsible who have the consciousness to get past the want for instant gratification and look at the “big picture”. Ultimately, strong financial health is just as much about psychology as it is numbers.

For more about the psychology of personal finance, here are a few good reads:
Personal Finance Psychology-at Bargaineering
The psychology of personal finance-at Hubpages
The Viscious Psychology of Spending-at Money Under 30
Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich
The Psychology of Money
The Millionaire Next Door

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