5 Ways Your Brain is Sabotaging How You Manage Money and How to Fix it
Last week, I was trying to save money and eat healthy so I decided to cut back on take out dinners and weekend bingeing. I was doing well, until Saturday when I saw a promo deal in a buffet restaurant.
As you can imagine, that one temptation derailed my eat-healthy and save money goals in one fell swoop. I knew the money I spent could’ve been used to buy a few days’ worth of groceries. But instead, I opted for a lavish buffet dinner that gave me three hours of glutinous contentment.
I remember walking out of the restaurant feeling a mix of acid, guilt, and dread for the hours I’m going to spend on the gym the next day.
Like most people, I don’t splurge just because. So I was terribly surprised that I ‘gave in’ easily. Financial experts, however, say this is pretty common even with people who think themselves logical and frugal in their money management.
Invisible Money Scripts and Your Brain
Turns out, our brain and emotions hijack our money management more frequently than we suspect.
People’s personalities are formed based on their environment and life experiences. Your money ‘personality’ is formed in a similar fashion—from childhood experiences with money, observing your parents, and other early financial stressors, according to Kansas State University Professor and Psychologist, Bradley Klontz.
It’s common knowledge that the rich view money differently than the middle and lower class population.
A study published on the Journal of Financial Therapy confirms this. A test on 400 plus participants revealed a huge difference between the financial views of wealthy and financially struggling participants, including three types of negative money scripts related to lower income.
Stop Your Brain from Sabotaging Your Budget and Financial Goals
2 Retail Therapy (aka Impulse Buys)
I’ll buy this shirt now. I deserve it after putting up with my demanding boss”
“This shopping trip doesn’t count; I’m (stressed at work, sick, on vacation)”
Contrary to popular belief, retail therapy isn’t limited to the ladies. According to a 2013 survey by Ebates, “51.8% of Americans shop to improve their mood, including 39.8% of men and 63.9% of women.” Besides, who doesn’t like buying something ‘nice’ after having a stressful day?
Occasional impulse shopping is okay. But if the result is having something you want in exchange of something you need—like food, electricity, money to pay the bills, then it’s no longer healthy. Is the adrenaline rush of owning something new worth it, if you’re getting in serious debt? Worse, what if it leads to bankruptcy and destroys your relationship with loved ones?
Allow yourself to splurge, budget permitting. Better yet, allocate a small percentage of your income to retail therapy, so your budget isn’t derailed when you need a little fix. Stick to your rules.
If you’ve already spent the allotted money, don’t spend anymore. Write down what you want to buy and keep it in your wallet. Think of it as a promise of what you’ll buy if you make it to the next pay day without overspending.
2 Money Avoidance (aka “Money is Evil,” “I Don’t Deserve this”, and Other Limitations)
Money avoidance includes a set of beliefs often rooted in bad experiences during childhood where money was mishandled or misused. It can also come from negative beliefs parents pass on to their children, such as “it’s hard to earn money,” “money is the root of all evil,” and the ever-popular, “rich people are greedy.”
A friend of mind shared a story of a guy, who had a $10,000 mentality.
He has $10,000 in his savings account, no more and no less. If his savings exceeds $10,000, he starts thinking that he shouldn’t be greedy. Sometimes, he rationalizes that he doesn’t deserve to have that much extra money lying around because of other people that need help. Before he realizes it, he comes up with an “urgent” expense to justify spending the extra.
It’s more of a mental fix. Accept that your parents’ financial habits have no bearing on who you are now. You can change and form better money management habits that are 100% your own. Accept that money—whatever the amount—isn’t inherently evil. It’s a tool that can be used for the dark or light side, depending on the wielder.
2 3 Keeping Up with the Joneses (Comparison)
Oh god, is that Bob’s new car?”
“Really, Jenna just bought a house? And here I am still renting?”
Yes, comparing yourself to others is unhealthy. But it’s also common because of social media. What you should realize is it’s hard to accurately compare yourself to others, when you don’t see the whole picture. For all you know, that person you’re envying is actually drowning in credit card debt. If you don’t realize this, you’ll try to keep up and in the end, might share their financial fate.
Next time you get jealous, use it as an opportunity to examine if you really want what they have. And if so, how can you adjust your budget to earn the money needed? Are you willing to sacrifice your fancy coffee every morning, or minimize your cell phone bill to save up? Are you willing to take a side job to earn more?
4 Regrets and Risk Aversion (Fear of Loss)
A 2012 Northwestern University study found that 10% of Americans’ biggest regret is money related. So if you’re still upset that you didn’t start saving for retirement early, or scared of opening a business because a previous attempt didn’t pan out, take heart that you’re not alone.
Regret puts you in a debilitating cycle of victim mentality, where you’re second-guessing yourself or otherwise trapped, thinking it’s too late to make a change.
Unfortunately, that defeatist attitude will only make things worse. If you think you missed your shot at saving for retirement, you might end up winging it and not saving anything at all.
In terms of past mistakes, such as a previous investment that went sour, risk aversion causes you to overthink future decisions that affect your finance—to the point that you’re missing out on good investment opportunities.
Accept that every purchase and every investment carries a certain risk. You can’t control what happens, but you can anticipate the risks and plan counter measures to minimize your loss.
5 More Money Will Solve my Problems (Money Worship)
If I just earn more, I can pay my student loans”
“I hope my boss gives me the $1500 increase we talked about last time”
Ah, the all too common thinking of the working masses. Mind you, for some problems more money is really the solution. But if you’re to stating to parrot this belief to every problem you face, then we have a problem.
If you worship money and things—if they are where you tap real meaning in life—then you will never have enough. Never feel you have enough.”
People who immediately think of money as the first solution to their problems are often workaholic, risk-takers, and sometimes, gamblers, according to Klontz Money Script Inventory.
Money doesn’t buy happiness or peace of mind, especially after your household income hits $75,000 annually. According to the study by Economist Angus Deaton and Psychologist Daniel Kahneman, a person’s day to day happiness increase as they earn more. But after $75,000, it’s just more money, with no tangible effect to your day to day happiness.
I’m not going to stop you from working hard. But if you’ve hit the magic $75,000 number, perhaps it’s time to re-evaluate your priorities. What is it that drives you? Is it earning more, or are you just a hamster trapped on a spinning wheel?
Don’t make your happiness and peace of mind dependent on your income. Sure, you need money to live but good budgeting and a solid savings system can help you get there without pulling 12-hour shifts.
Uncover the Invisible Scripts Sabotaging Your Money Management
Did you see yourself in some of these examples? Knowing those invisible scripts are there is the first step to overcoming them. If you have more than one of these, tackle them one at a time so you don’t get overwhelmed.
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