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Master the Psychology of Money

Sep 6, 2022 10:00:00 AM

Peanuts GIF: What's the issue?In a culture that equates net worth with success and even value as a human being, money can understandably play mind tricks on us.

Despite that, your financial success isn’t about how smart you are, how lucky you are, or how much career success you have. It has far, far more to do with how you think about money – and in, turn, how you behave.

While financial literacy does demand knowledge and skill, dealing with money is far more emotional and nuanced than most of us realize! Use these psychological truths to avoid mistakes and reach your (financial) potential.

Truth: Your Upbringing Impacts Your Relationship with Money

How your parents related to and talked about money will affect how you relate to money as an adult. A family that avoided talking about money, for example, may lead you to feel anxious and avoidant of frank financial discussions as an adult. Low income or other money pressures growing up can create a sense of guilt. Part of growing into a fiscally responsible adult is recognizing (and overcoming) these cognitive distortions developed when we were young.

Truth: If You Keep Moving the Goalpost, You'll Never Be Satisfied

Our culture has a more, more, more approach to financial success. No amount is ever too much. This bottomless pit of want is dangerous because it can drive us to extreme lengths to get what we want! This results in lifestyle inflation: earn more, spend more. It will set you on an endless hamster wheel. In fact, it’s the hedonic treadmill – the tendency in humans to return to a baseline of satisfaction and happiness regardless of positive life events. Once the temporary high is gone, we want more to satisfy that hedonistic want.

We must learn that enough is, in fact, enough.

Truth: Understanding Impulsive Behaviors Will Save You Money

We all have impulses, but giving in to them means making a decision based on desire without weighing the consequences. Understanding impulses particularly as they relate to money will help you build and retain hard-earned wealth.

We must understand the underlying motivation for making impulse purchases. People with shopping addictions, for example, receive “high” from making purchases. You might buy things to satisfy an unmet need, ease a sense of unhappiness, improve your image, or distract from other problems. Examine yourself and how you feel after you give in to these impulses. It will help you uncover your motivations and find healthier outlets.

Truth: Shame Distorts Your Ability to Effectively Manage Money

Feeling shame about money is more common than you’d think! It happens most often to those in debt, who, by the way, are more likely to encounter stress and mental health problems. Rather than dealing with the money issues at hand, we’re more likely to avoid them. And that means refusing to get help, too. These financial stresses can make you feel incapable of solving them, creating a cycle of avoidance. This doesn’t just happen to people in debt, either. You’ve got to pull yourself out of this mental trap and recognize that you control your money: it doesn’t control you.

Man looking at credit card and laptopTruth: Success Is Cultivated in Everyday Decisions

While you might think your wealth hinges on big financial decisions, the truth is that success is found in many consistent good decisions, big and small. We know, for example, that most lottery winners wind up broke. Having money isn’t the solution – making good decisions is.

Truth: Longevity Is the Single Most Important Factor in Financial Success

We’re not patient creatures. While we can easily plan for the upcoming week, we have more trouble being passionate about a 10-year plan. Delayed gratification is the cornerstone of financial success. This is the nature of investing and compounding wealth – it takes time for your efforts to pay off! You might grow weary of doing the work of fiscal responsibility, especially when giving in to impulse seems more satisfying.

Ultimately, though, perseverance is the one thing that will set you apart from your peers. Just as it takes time for a sapling to grow into a stable, healthy tree, your wealth must be nurtured throughout your lifetime.

 

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