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Saving money is hard, there is no question about it. Understanding your own psychological hurdles to saving money is essential to growing your wealth over time by consistently spending less than you make. Take a moment to review & reflect on how you can better prepare your future self.
Instant Gratification
Humans are hard-wired to seek immediate short term incentives. Delaying that gratification, by considering major purchases and not giving into impulses is a habit that like anything requires practice and discipline to overcome.
Social Comparisons
The social media age has made this increasingly hard – there was a time when what others were doing or buying didn’t hit your radar constantly throughout the day. It’s important to remember that no one’s situation is the same as yours and your spending should reflect your goals not somebody else’s.
Financial Illiteracy
This is a big one. The overwhelming majority of the population does not have a good handle on understanding finances and the effect their spending vs. savings can have on their long-term financial well-being. Finding a good mentor and being curious about the world of personal finance is essential to having success, IT’S NEVER TOO EARLY TO START!
Psychological Anchoring
This is another psychological bias we fall victim to far too often when we’re unaware of it’s effect on us. We tend to rely too heavily on the first piece of information we’ve encountered and base decisions off of that. Marketers know this all too well – consider when a jacket is $150, is it good value for your money? If that same jacket has a price tag of $300 scratched out with 50% off on it, does it entice you to buy it? Has the value to you changed or did someone influence you?
Avoidance & Denial
The world of finance has been long under taught, and made to be more confusing than it needs to be. This leads to people avoiding the subject all together because they are overwhelmed and unsure who/what to believe. This is again where a trusted mentor can help demystify false believes, answer questions and help create a plan that is right for you.
Fear of Missing Out (FOMO)
Learn how to say no because the reality is you probably can’t afford to do everything you want and also take care of your future self financially. Having a monthly limit on your fun money is a good way to create guardrails and help you guide future decisions.
Emotional Spending
Some call it “retail therapy”; our emotions significantly influence our spending habits. Some buy to alleviate feelings of sadness, stress, boredom – you name it. The best way to dodge this bullet is by consciously considering why you’re buying something – do you need it or want it? Why? Consider your options.
Not Thinking About the Future
Being present and living in the moment is undoubtedly important – but don’t make it a habit if it means sabotaging your future self. Life tends to move quicker than we anticipate, so without obsessing what the future looks like (because we promise you it will be different in so many ways), you should be prepared for what comes next.
Resistance to Change
Changing your lifestyle (your spending and savings habits) is difficult, and only gets harder with age. Change happens regardless of whether we are ready or not, so learning to live within your means and being smart with your money is something that will have the greatest impact in your financial life (beyond what investments you chose).
Life Experience
Every person comes with their own baggage and beliefs when it comes to spending and saving money; challenge those thoughts. Does the past accurately reflect your present or future self? Do you feel good about your path or do you need to make a change to avoid financial hardship?
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