Chances are most people would write the word ‘money‘. Similarly, if you were to ask people what they need more of in order to live a happier life, the answer would most likely relate to finances. An interesting part of this observation is that it doesn’t matter how much a person currently makes; their answer will still be the same whether they make $15K or $200K per year.
At the root of this phenomenon lies emotion. Left unchecked, our emotions can destroy our best intentions, especially when it comes to successfully managing our finances. Emotions can throw the best-laid plans and goals right out the window, leaving us wondering what went wrong as we’re constantly missing the mark with our saving and spending habits. Emotions can also lead us down a path of unnecessary, mindless spending and, worse, leave us with a head-in-the-sand approach to tackling our debt.
The Tangled Web
If you’re not familiar with what the tangled web of money and emotions looks like, just open your closet or garage door. It’s the designer shoes you treated yourself to after a particularly difficult day. It’s the new boat you bought to celebrate a promotion (instead of increasing your 401k contributions). It’s all of the things you’ve purchased over the years that no longer have even a sentimental value; the items that have been cast aside in an abyss of emotional, financial, and physical clutter.
What makes this web even more difficult to navigate is that our spur-of-the-moment, impulse purchases often have a lasting effect on our financial bottom line. Each time we ‘treat ourselves’ or decide that we’ll ‘figure it out later’ in order to have fun/be happy now, we’re further entrenching ourselves in a destructive behavioral pattern that opens the door for worse habits. Each time we ‘charge it and forget it,’ we’re essentially being ruled by our emotions, thereby setting ourselves up for a potential lifetime of destructive financial patterns that will profoundly affect our goals, dreams, and self-esteem.
So how exactly can we untangle this web? What types of systems can we put in place to overcome our innate tendency to allow our emotions to rule our financial world? The answer is actually quite simple and consists of a few steps that all financially-savvy individuals should already be taking:
- Set financial goals. By not setting financial goals that are defined, attainable, and realistic, you may be setting yourself up for failure. Furthermore, keeping a written record of your goals serves as a visual reminder of all you’d like to accomplish. The next time a bad day threatens to derail your progress, whip out your goal sheet for a reminder to stay the course.
- Set a plan to meet those goals. We’ve all heard the quote, “If you fail to plan, do you plan to fail?” Financial goals are not a ‘set it and forget it’ entity–they require maintenance and continual attention/effort. In order to effectively meet your goals, you should have a clear idea of how to do so as you set them. Timelines are a very useful way to set a plan that will allow for easy review and great loads of motivation as you check off each item. Having a plan for reaching your goals also gives you extra insurance against those times where your emotions are attempting to wreak havoc.
- Track your spending. In addition to setting goals, you should also be tracking your spending. Much like runners keep training logs, tracking your spending allows you to identify triggers, temptations, and areas for improvement. Whether you keep it in a notebook, Excel sheet, or on a napkin, your spending should be written down and carefully monitored in an effort to manage both your emotions and money.
- Communicate. By sharing your goals with those around you (especially family and close friends), you’re effectively building yourself a security network. Verbalizing your goals makes them real and gives you ownership of your financial destiny. If you’re not comfortable sharing this type of information, I’d first challenge you to overcome this insecurity as it’s another example of an emotional stronghold on your finances. I’d next encourage you to find an anonymous way to share your goals until you work up to being able to share freely (perhaps through a blog!).
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.