How to Change Your Financial Behavior

At Millennial Economics, we believe good financial habits do not only come down to mastering numbers. Good financial habits stem from an understanding of finance but also, and in some cases more so, an understanding of yourself. In this article, we will discuss what good financial behavior looks like and how you can change your financial behavior to achieve your financial goals.

What is Your Financial Behavior?

Your financial behavior is your relationship with money - how you interact with it and how you use it in your life. It is the other side of the numbers. We all know that if you spend less than you make and use your margin to invest and save you will become financially successful. That is not rocket science. It truly is as elementary as 2 + 2 = 4.

Where people tend to get in trouble is when they neglect analyzing and improving their behavior with money. Money is an emotional thing. Maybe you grew up poor. Chances are many of your actions, conscious or subconscious, are shaped by that fact. Maybe you build an unhealthy dependency on working and saving all of your money - neglecting your home, family, and ability to take small risks and invest.

Maybe you grew up with a lot of money. You may play this out by not thinking enough about your finances and your future because money was never an issue in your life.

The ways we realize our emotional relationship we have with money can really be endless, but it would be foolish not to spend some time analyzing our relationship with money so we can better understand how we can effectively manage our finances.

Two Case Studies

Let’s take a look at two fictitious examples.

First, we will take a look at Nick. Nick grew up in a household where not having enough money always seemed to be a problem. His parents never brought in large amounts of money, and they were somewhat financially illiterate. His parents never saved much and never invested anything at all. He grew up feeling the pressures of not having much. He never went on vacation and saw his friends enjoying things he knew he never could.

As Nick grew older and entered adulthood he vowed that he would never feel like he did when he was a child. He was committed to having a good job and making lots of money. He was also committed to saving his money so we could feel the stability of having something to fall back on.

While Nick became a great saver, surpassing most of his peers when it came to the amount he had in his account, he also struggled to invest and placed too high of a priority on safety and stability. He had a hard time enjoying his money and worked so much that his family felt they came second to his career.

As we can see with Nick, his relationship with money produced some good things - a good work ethic, the ability to provide for himself and his family, and an understanding of the importance of spending less than you make. It also produced some less desirable things that he had to overcome - a propensity for workaholism and a struggle to enjoy what he was working so hard for.

Secondly, we will take a look at Jamaal. Jamaal grew up around money his whole life. Both of his parents had great careers. He lived in an affluent part of town and went to only the best private schools in the city. All of his friends were wealthy. Jamaal never truly felt any need to worry about not having enough money. Having a job as a teenager wasn’t something he did for the money. It was purely a social endeavor.

As Jamaal matured he never placed a high value on learning about money, after all, he always had his family to fall back on if times became tough. He went to college reluctantly and had a hard time holding a job for a long time due to his lack of motivation and understanding of what he wanted to do with his life. Jamaal spent what he earned on travel and going out with friends. He invested some of his money only because his parents made him, but he never had much of an interest in learning about personal finance for himself.

Much like Nick, Jamaal’s upbringing produced some good qualities in him. He understood how to enjoy his money, even if he went overboard. He also started investing at an early age, even though he didn’t develop this knowledge for himself. He didn’t stress about money on a day to day basis. Jamaal also developed some less desirable habits. His work ethic lacked. He relied heavily on his parents when it came to what he should be doing with his finances which inhibited his ability to invest on his own.

As we can see, our relationship with money can drastically affect how we handle our finances as we mature.

How to Change Your Financial Behavior

Now that we understand how our perception of and relationship with money can affect how we manage our finances, let’s take a look at how we can change our financial behavior.

Discovering Your Relationship With Money

The first step is to discovery what our relationship and attachment to money actually is. This comes through self analysis and getting the opinion of other others in your life whom you trust. Take a look at your bank statements. What do you find yourself spending most of your money on? Ask yourself, what scares you most financially? What do you find yourself worrying about the most? Asking yourself these things will shed some like on how you view money.

Asking others for their opinion on what your relationship with money is can also be beneficial. The key here is to consult people you trust and who have also been successful with their money. Chances are you will hear a wide variety of things. People will give their feedback through the lens of how they perceive money themself. It is important to analyze the opinions other give you and extract what you believe to be the truth out of it.

What Do You Want Your Relationship With Money To Be?

The next step is to decide what you want your relationship with money to be. Chances are, you have come across someone in your life, whether in person or online, that you admired for their relationship and outlook on money. For me, the people I have admired most have a very balanced yet calculated approach. They are well educated about how money works. They enjoy the money they earn in moderation, and they are disciplined in adhering to a financial plan. Do some soul searching and write down how you would like your relationship with money to look.

How to Make Change Happen

Now that we not only understand our behavior with money but also have developed a picture of how we would like our relationship with money to look, it is time to implement some change to get us there.

Changing our behavior and emotional relationship to anything in our life can be very hard. There is always a reason why we operate the way we do, and typically it is due to a deep-seated desire for something - stability, wealth, freedom, etc.

The first step is to make a plan that will get you to your goal. Maybe you change your budget a bit to align more with what is important to you. Maybe you commit to reading more to increase your financial knowledge. Your plan will be as unique as your goals, but it is important to implement a plan for you to adhere to.

As you start on your journey it is important to remember that you will fail at times. You will have moments of weakness, and you will slip up. The most successful people are not without failure. The most successful people learn from that failure, iterate, and get right back on the horse.

Summary

As we have learned, diagnosing and working on bettering our behavior and relationship with money is a vital part of achieving your financial goals. The way we view money has an effect on many aspects of our life - financial and personal. Spending time and energy in not only mastering the numbers of finance but also learning the emotional aspect will prove worth your while.

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