The way we decide to spend money is really complex. We’re influenced by thousands of things –both good and bad.
Whether you’re trying to dig yourself out of debt, or just save a little bit more money each month, it can be invaluable to understand how the world is influencing you to spend or save money.
Because understanding human psychology is so critical to staying on the path to wealth I’m enjoying reading Ramit Sethi’s recent posts on his blog: I Will Teach You To be Rich. I can’t recommend the site highly enough for going deep into the psychology of why you spend and what’s holding you back from earning more.
I’ve particularly enjoyed reading about barriers to taking action and the way we can justify anything to ourselves:
Myth: “I need more information to make the right decision.”
Reality: In many cases, having more information causes “analysis paralysis” and actually prevents you from taking action.
How it relates to growing your pennies: Have you not started saving in an ISA because you’re waiting to research the ‘best deals’? Are you put off learning about investing because there’s so much to take in?
The Solution? Do something. It’s much easier to tweak an investment portfolio or even transfer a savings account, than it is to actually start one. But making the first step will have hugely positive implications to your financial future. Just do something positive with your finances and perfect it later.
Myth: “I’m in control of my own behavior
Reality: Your behavior is highly susceptible to your environment and the context around you. You can unwittingly be persuaded to stay in a smoking room, shock someone to death, or donate more money — all things you would not “ordinarily” do.
How it relates to growing your pennies: Are you really in control of your spending? Even the most conscious spender can find themselves influenced unconsciously.
The Solution? Take as much will power and decisions away from your day to day life. If today you’re motivated to improve the amount of money you save every month, then strike when the iron is hot and make it automatic: grow your savings with auto-transfers every pay-day’; set up a pension and investing vehicles, and then get on with your life, checking up on them every so often. For more on automation click here.
Ramit has also been talking about the benefits of taking action.and the importance to be always testing what works best for you.
I’m sure you don’t need me to tell you how this relates to your wallet right?
Happy reading (and implementing!).
Magical Penny Around the Web
Carnival of Personal Finance #292 – Most Expensive Homes in The World Edition
Adam from Magical Penny presents Confessions of a Procrastinator -And Why You Should Be Saving For Retirement Today, and says, “It’s hard to tell the effect of an extra few hours of preparation could have made in some instances but one thing where the impact of preparation is not in question is when it comes to saving for retirement.