July 29, 2022
Do you ever feel like no matter what you do, you just can't manage to escape the consumer mindset and reduce your spending?
Everywhere you look, there are advertisements and people trying to convince you to buy things you don't need. It's no wonder that so many people find it impossible to save money and succeed with their personal finance planning.
There are plenty of personal finance apps and resources out there, but if you don't have the mindset to follow a plan or a budget, they're useless. That's why we're discussing the psychology of money.
We'll look at what money psychology is, how it plays an essential role in helping you stay on budget and achieve your personal finance goals, and discuss how it begins with avoiding consumer thinking.
We'll also discuss what happens when you successfully pivot away from a consumer mindset and start investing in yourself and others. And we’ll share personal finance for beginners resources to get you started!
Money psychology refers to the thoughts and beliefs that motivate money behaviors and choices.
Personal finance management tends to view money behavior as products of knowledge, habit, or a financial plan involving lots of spreadsheets or tools. The psychology of money goes deeper, exploring the underlying emotions and mindsets that sabotage your intentions and best-laid plans.
By becoming aware of your patterns, you can create a new mindset and transform your life. It all starts with examining the psychology that keeps you trapped in a consumer mindset.
Contrary to popular assumptions, personal finance for beginners doesn’t start with books, courses, or advice. It starts with kid's commercials, Disney, toy stores, and cereal boxes.
Our education in personal finance management starts early, the first lesson is how to be the perfect consumer. We're taught to desire things from the marketplace instead of creating or "making do" with what we have.
To make matters worse, common personal finance management strategies like frugality or "don’t buy" can also keep us focused on a consumer mindset.
While frugality has its place, it's often simply about finding more and the cheapest price. It can encourage hyper-spending behaviors on things we need the least. One example is fast fashion. Methods like “don’t buy” can be another problem area.
Yes, you can create budgets and stop buying things you don't need (we're all about that!). But if you stay locked in a "do or don't buy" mindset, you're still basically focused on thinking like a consumer.
So, what can you do?
While you should incorporate core finance practices like budgeting and saving, you can do these things from a strong creator mindset.
What does this mean?
This means that your behaviors and choices are primarily motivated by what you can create and build, not what you purchase and consume.
For example, you can invest because you want lots of shiny new things or you can invest because you want to build a future rooted in a vision based on personal fulfillment. One is more focused on purchasing while the other is about building.
Both options are valid and they both meet important needs. But the values of creating and building are stronger in the second choice.
As one of the best personal finance apps, we know how critical budgeting is to personal finance management. That's why we created this resource about personal finance for beginners.
Once you understand the basic principles of personal finance planning, you can implement them fairly easily, especially if you use a budgeting app like ours.
However, we recognize that making a plan and using an app is less than half the battle. Sticking with it is the hard part. This is where the psychology of money comes in.
Once you implement a budget and become aware of your spending habits over time, you're going to identify pain points or overspending on things you don't need. If you reduce spending on these things, you'll have more money for saving and investment, as well as for things that truly matter.
What emotions could be getting in the way of this seemingly simple practice?
Common emotions that drive overspending are guilt, fear, envy, frustration, and loneliness (or the desire to belong and be accepted).
When you're trying to stop compulsive or unnecessary spending, ask yourself why you're buying in the first place. What emotion is driving you? Do you see a pattern? If so, work on this emotional pattern.
Recommit to your budget and reframe your spending decision like a creator. Don't ask, "what should I buy or not buy?" Ask, "what am I creating with this purchase, if anything?"
Once you've started to reduce spending, the fun part of money psychology comes in. What life goals could your savings and personal finance goals serve? What are you building that makes you happy? These are incredibly powerful questions.
When you stop spending on things that don't matter, you're able to invest in the life you truly want. If you don't know what you want yet, you can explore and learn about what makes you happy as you go.
You don’t have to have it all figured out. You can save and invest while you discover your vision.
Have you considered setting up a special financial account and naming it after a life vision? Ideas could be "My Vision," "Investing In Me," or even "This please!"? Create a name that works for you. Every time you read the name of this account, the money in it will be tied to your vision or happiness. This works even if your vision is undefined or hazy.
Your emotions and beliefs can make or break your financial plans, often without you even being aware of them. The next time you're about to give up on your budget or you're depressed about overspending, think about how your they could be motivating your behavior.
Staying mindful of your money psychology is a big part of what helps you stick with a budget and personal finance plan. It can get you through tough challenges, change self-sabotaging behaviors, and inspire you to invest in yourself and others.
This article was written by
Kent Thune, MBA, specializes in educational investing content. With 25 years of wealth management experience, and writing about finance for 15 years, Mr. Thune's articles have been published on multiple investing websites, including Kiplinger, MarketWatch, The Motley Fool, Yahoo Finance, and The Balance.
When it comes to personal finance planning, we believe it all comes down to budgeting smarter, saving more money, and planning for what's important. This is why we built the best personal finance app available.
Check all your accounts in one place, stay on top of spending habits, set money aside with automatic drafts, and stay motivated on your journey. We hope you enjoyed this article about money psychology. Sign up for our free personal finance tools today!