“Live within your means” and “save money” are simple golden rules of financial wellness. Knowing them, why do we still make the bad money choices we do even when it jeopardizes our financial goals? Note: This also applies to pretty much every other aspect of our life (i.e. weight-loss – eat fewer calories than you burn or sleeping – go to bed by X time to get 8 hours rest. The list goes on and on). It all makes sense and sounds so simple but why do we struggle with it?
Geoff Williams from US News has some reasons…
We think buying things will make us happier. We often purchase things to make us happier – food, clothes, or the latest technology. It may make us happier in that moment but then we adapt and just want something bigger and better.
Bad choices are habits. We may make money choices we know we shouldn’t but sometimes we make them just out of habit – some people are used to not having any money or building up debt. This is their “norm.”
It’s how we were raised. Habits often come from programming – informal or formal. What we heard growing up or what we saw those around us doing often influences what we do. So if your parents spent everything they earned and had nothing leftover to save, you might default to that too.
We are “playing a part” or trying to impress others. We buys things to look like the person that “has it all together” or to make sure we have the latest and great [fill in the blank].
When immediate rewards are available… we tend to go for them (even if they are associated with delayed punishment). If this weren’t true, “no one who knows they’re likely to get a hangover would drink excessively, and there wouldn’t be drug addicts” says Robert Epstein, a psychologist. He calls them “dark rewards.”
But the good news is, we can change! It takes a lot of commitment to rewire and change our mindset but most people can learn some degree of restraint when the payoff is high such as financial security, retirement, that dream trip you’ve been wanting to take, or anything else very important to you.
– Make it easier to budget by restricting your access to money / credit cards
– Lock away credit cards or shred them
– Only carry around as much cash as you want to spend that day