Behavioral tips to help you reach your personal financial goals
Personal finance is not just about making more money, spending less, and saving more. It also involves learning how to manage conflicting desires, such as wanting to strive for a more secure financial future while also wanting to spend your hard-earned money. Learning to manage these desires in a way that keeps you focused on your long-term goals is very important. Here are some behavioral personal finance tips that can help you.
Define Your Values and Priorities
Before you can set financial goals, it's important to define your values and priorities. What is important to you? What do you want to achieve in life? Your values and priorities should be the foundation of your financial plan.
For example, if you value travel and adventure, you might prioritize saving for a dream vacation on top of saving for retirement. If you value family and community, you might prioritize contributing to a savings account for your child’s college years or making regular donations to your favorite charity. Defining what is important to you will help you satisfy your emotional self by seeing progress towards not just financial wellbeing, but also towards something that you truly care about. When you are emotionally happy, saying no to things that are not a priority to you will become easier.
Use the Power of Visualization
Visualization is a powerful tool that is used in different scenarios. Athletes, for example, use visualization to build confidence before a big game or competition. By picturing the moment they score a touchdown or make a goal, their brains reward them with positive emotions and offer them a clearer path of what they need to take to get there.
Visualize yourself achieving your financial goals, whether it's paying off debt, saving for a down payment on a house, or retiring comfortably, and allow yourself to sit with the positive emotions that come with accomplishing your goals. Then visualize yourself taking the necessary steps to achieve those goals, such as saving more money, reducing expenses, or finding other ways to make additional income. If you incorporate visualization to your week, you will be much more likely to stay true to your goals.
The poster below was hanging in one of my classrooms in high school and has been one of the many things that made me strive to learn more about personal finance. I don’t care much about a house on the ocean but a five-car garage is right up my alley.
https://journal.classiccars.com/2023/07/12/meeting-marty-petersen-artist-of-the-iconic-justification-for-higher-education-1980s-poster/
Automate Your Finances
Automating your finances is one of the most effective ways to manage your money and achieve your financial goals. Automate your savings, investments, and bill payments so that your goals come first, and any other expense that is not part of your goals comes after them. You can do this by setting up automatic transfers from your checking account to your savings account, or setting up automatic contributions to your 401(k) or IRA. This will help you save more money and invest for the future without even thinking about it.
Avoid Impulse Purchases
Impulse purchases can derail your financial goals and cause you to overspend on things that don’t bring you long term satisfaction. Before making a purchase, ask yourself if it aligns with your values and priorities. Do you really need it? Can you afford it? Will this delay your financial priority? Are you ok with delaying your goals to satisfy this want? One way to avoid impulse purchases is to create a "cooling off" period. If you see something you want to buy, wait 48-72 hours before making the purchase. This will give you time to forget about the item you wanted to purchase so badly or allow you to reflect on whether the purchase is an impulse purchase or if it aligns with your values and priorities.
Practice Gratitude
Gratitude is an important mindset to cultivate when it comes to personal finance. Focus on what you have, rather than what you don't have. Practice gratitude not only for the things that you do have but also for the progress you are making towards your financial goals. Gratitude can help you stay motivated and positive about yourself, even when things are challenging. It can also help you avoid the overspending trap that has been affecting a society that is heavily influenced by social media, which only leads to financial distress for most people.
These are just a few behavioral tips that can help you achieve your financial goals by addressing the underlying habits that impact your financial well-being. By defining your values and priorities, using the power of visualization, automating your finances, avoiding impulse purchases, and practicing gratitude, you can develop the mindset you need to achieve financial freedom.