Why Is Changing Your Financial Habits So Hard?
As humans, we hate change. It is our nature to find what works for us and stick to it. Change is hard. It’s uncomfortable. Why do we have to change if what we’re doing isn’t hurting anything?
The question we should be asking ourselves is “is this good enough?”. Sure, maybe what you’re doing isn’t hurting anything but is it really what’s best for you? If not, don’t you want to improve your situation?
People hate to change even when it means the difference of tens of thousands of dollars. Seriously, we are talking about small changes here that could make a huge impact. More on that later.
Everyone I work with is smart and capable. They have good jobs, good families, and make generally good decisions. But when it comes to their finances they are hesitant. Some take it a step further and use the tactic of ignoring it and letting it sort itself out.
Why is this?
Well, each situation is different but when you dive into the details it’s easy to understand. For some, they grew up poor so they just don’t have the experience of managing money. Others were raised in a household where you didn’t talk about money. It was rude. This carried over into their adult life so they continue to just not talk about it.
Of course, this doesn’t work that well.
I see this pattern over and over again when helping people with their finances. But I didn’t realize how significant it was until I started doing more one-on-one financial coaching.
I’ve seen many different situations and it can be easy for me to jump the gun and tell them what to do. But that doesn’t take care of the root issue. That doesn’t solve the resistance to change that is going to happen.
A year ago I would never have written this article. I was naive to the extent that behavioral and psychological factors reach into your financial habits. I now understand that these are much more important than your current savings rate or investment portfolio mix. Your mind is the most powerful tool you have to build wealth.
Back to being resistant to change. We are talking about money here. Yes, money isn’t everything and there are more important things in life but you can’t deny the fact that you need money to survive. It’s the currency the world has chosen and if you would rather trade livestock or grain you still can but that for the most part that ended 200 years ago.
You have no choice but to learn good money habits.
Let’s talk about a couple of good money habits that you can get started on today. There are so many good habits you can work on but I want to focus on two. The first is simple; Spend less money than you make. The next is a little more complex; Understand what and where you’re investing in, why you’re invested in those things, and recognize your own personal investing habits.
Both are very real habits and two of the most common ones I see people ignoring.
Spend Less Money than You Make
This seems self-explanatory but trust me, it’s really not. And you shouldn’t feel bad if this section applies to you. It applies to a lot of us. The goal is simple but reaching that goal takes a lot of dedication and restraint. None of my tips and tricks will work if you don’t live within your means.
We get it, life happens. Every so often you’re going to have a month where you spend more than you made but we want you to have saved up for those moments and we don’t want that to be the norm.
A great tool that you can use to help you monitor your spending and see how it compares to your income is Tiller. I use this to help keep myself on track. It allows me to connect all of my accounts and categorize the things I’m spending money on. They even send an email every day that shows your previous transactions, like a receipt. This keeps you accountable and helps you keep an eye on your finances.
Once you’ve seen where you’re spending your money, you can visualize where you can cut back. Maybe next month you only eat out once or week or you reduce your online shopping to a specific budget.
If you’ve looked through your spending and don’t see much you can cut back on (or you’re not willing to cut back on the fun stuff), your next option is to make more money. Perhaps this means picking up more hours at work, asking your boss for a raise, or starting a side hustle.
No matter how you do it, spending less than you make allows you to save for emergencies and leisure. Once you have some cushion, you can go about making that extra cash work for you.
Understanding Your Investing Habits
One of my favorite points in one-on-one financial coaching is going over an individual or couple’s investment portfolio. Most people aren’t nerds about this kind of stuff and to be honest, you don’t need to be. Me though? I love it so I’ll keep helping you through it.
There are a few things you should know before you start investing.
The first is your risk tolerance. Higher risk does usually mean higher reward BUT if you’re uncomfortable with big risks or don’t have the freedom for big risks, don’t do it. It’s not necessary to be successful. Taking a larger risk means you will have lower lows and that is where controlling the emotional and mental side of money comes into play.
This gives some people unnecessary stress and anxiety and there is no point of putting yourself through that.
The next thing you should always know is what you’re investing in. You can google most funds to figure out their rate of return for the year and the fees. This is often called the expense ratio. You just have to decide if you think the numbers make sense and it’s worth it for you.
The last thing you need to know is your personal investing habits. Are you going to make this a priority and check it every month? Or are you a do it and leave it kind of guy? Are your finances in a place where you can invest a chunk or do you need to start small? There is no wrong answer, just be self-aware and do what’s best for you.
It’s quite easy to look up a financial planner and be wowed by their quotes and numbers, especially if you don’t have a finance brain. It also seems so much easier to let a professional take care of it, because they have to do a better job than you can, right?
Just because something seems easy doesn’t mean it’s right.
I’ve heard too many tragedies about people handing over their hard-earned money to these “finance gurus” and ending up with a significant loss. It’s bad enough to spend too much of your own money, let alone when someone else is spending it.
If you do use a financial planner, make sure that you’re asking questions. Figure out what it is you’re invested in, the rate of returns, and the fees that they’re taking out. It’s your money! Don’t allow someone else to play around with it. To learn more about whether or not you need a financial advisor then check out my article Do You Need A Financial Advisor When You’re Under 25?
Some of you may be asking isn’t my coaching just like financial advising? Not exactly there are some distinct differences. I explain all of that and more here: Money Coach vs. Financial Advisor: What’s The Difference?
Investing seems scary but it doesn’t have to be! You don’t have to have a degree in finance to invest appropriately. It just takes a little bit of effort, patience, and the right tools.
We like to use a couple of different platforms for investing but for 99% of people, I point to Wealthfront. It is a wonderfully easy tool that breaks every step down and tailors your account to your personal needs. You’ll go through a questionnaire that measures your risk tolerance and invests you in funds that reflect that. You can set up automatic deposits for whatever amount you desire, or you can send a chunk over to the account and just let it grow.
If the thought of starting to invest makes your chest hurt then take a deep breath and let me show you a solution I’ve built. One of my mini-courses, Opening An Investing Account, takes you through all of this step by step. This is a short course and is for people that are serious about started to invest today. If that is you and you just need a little guidance then be sure to check it out.
Either way, it’s your money and you’re in control. It takes less than 15 minutes to set up and the best part is, you don’t have to spend basically any time on it again. Not so hard right?
The Bottom Line
Trying to get your finances in a stable place is already a stressful event. Money is important and it always seems like there isn’t enough of it. And now we’re asking you to change all your bad habits at once?
I won’t lie to you it is going to be some upfront work. But think to yourself would you rather do the work now and build good money habits or later in life when it’s too late? I don’t know about you but I’d rather do everything in my power to get things moving in the right direction now!
Change is a fact of life but it doesn’t have to be bad. Often change is pretty good once you embrace it. We want you to know that it’s not as hard as it seems and we’re here to help you every step of the way. You can do this!
If you liked this post then please share by hitting the icons above and if you want to read more articles here are my latest:
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- Why Is Changing Your Financial Habits So Hard?