A Crash Course To Improve Your Money Psychology

Personal finances are a function of several factors. Increasing income and cutting costs have obvious benefits to our balance sheets. However, what about your money psychology?

Your money psychology could be a barrier to reaching many financial goals. This extends to retirement savings, debt reduction or funding a child’s education. Whatever the goals may be, recognizing and controlling money impulses greatly improves your finances. The concepts apply to those who are mired in debt or are secure.

So, how can you improve financial self-control?

Here are some ideas to consider:

Cue Words:

Words associated with emotions or images are powerful. For example, ‘pets’ typically means more to someone with a dog or cat. Similarly, terms that apply to your personal finances are very effective, as well.

Someone may feel little control over their overspending. The short term joy from raiding malls may outweigh an empty savings account. In this basic example, saying ‘debt’ or ‘money’ forces you to think before forking over money.

Successful investors often cite discipline as a crucial asset. Rather than chase returns, Elliott Broidy and investment managers must balance risk and reward.

If loved ones depend on your financial security, their names may be cue words. Attaching images to your cue words is especially powerful.

Verbal cues help us focus money and energy for direct benefits to further our goals. Cue words stop spending that is justified by multiple degrees of separation. This type of reasoning says an expensive TV ‘increases happiness, which does x that improves y’, etc. Thinking ‘debt free’ and picturing a zero balance on your credit card could stall a needless purchase.

Cues make us think before acting. Athletes often use cues to excel under stressful conditions. You’ve seen basketball players taking a deep breath or whispering to themselves at the free throw line. These are cues that focus attention amid taunts from fans.

What cue words would be effective for you?

Use Technology:

Technology helps us better understand where our money is being spent. Tools such as mobile alerts send text messages if bank balances dip below certain levels.

Continually receiving low balance alerts between paychecks can be eye opening. Someone with limited savings can then see how precarious their finances are.  In fact here are several tools I use to manage my finances better.

Tracking your finances is also important. On average, how soon do you start using credit cards for everyday expenses in a pay period?

Being forced to use credit for gas, groceries and utilities is an indication that cash flow must be improved.  This benchmark establishes short term goals to achieve, which can be motivating for long term success. As an example, you could aim to not use credit cards for food or fuel within three months.

Online banking features include spending charts that show breakdowns of your purchases. These analytics provide insight into how you spend money. It can be alarming to see just how much is spent on eating out or clothes.

This visual has a personal effect that is powerful. Unlike generic messages, consumers are seeing the effects of their own decisions, which can compel action.

‘Personalize’ Your Personal Finance:

Understanding why and where you spend money is crucial to better spending decisions. Using technology and cue words makes this process easier.  So take some time to figure out what some of your verbal cues are and how you can integrate them into your life to improve your finances.

What cues do you use to make wiser spending decisions?