The psychology of money is a reflection of how someone’s beliefs, expectations and thoughts about money influence their financial success and life abundance. Do you have a scarcity mentality or abundance mentality?
Most people consider money a source of power and freedom, and that is why they spend a lot of time thinking about it and envisioning it growing and multiplying. At the same time, many people tend to feel like they are punching below their economic weight and, therefore, may never achieve the financial freedom they crave so much. If this sounds familiar to you then here are some practical steps you can take to start turning things around.
1. Change your attitude towards money
The first step towards achieving financial success is examining your attitude towards money. Do you need a paradigm shift? Some of us have interacted very badly with money. We fail to achieve our financial goals because of certain fundamentals that we have largely ignored.
Most people inherit their behaviour and attitudes towards money from influential people in their lives or what we saw as we grew up. In school, we never had lessons on how to handle our personal finances, how to save and invest wisely and neither did we attend any class on financial literacy. Which begs the question, what’s your psychology of money? What are your money habits? The psychology of money is a reflection of how someone’s beliefs, expectations and thoughts about money influence their financial success and life abundance. Do you have a scarcity mentality or abundance mentality? The good news is that our minds can unlearn and relearn and therefore we can change our money habits and money personalities.
2. Track your money
The simplest way to do this is to work with a budget. Consider it as a license to spend, a spending plan. It helps keep track of your finances. Contemplate having a small notebook to record all your weekly expenses, recording your purchases and what they amount to in a month. Having tracked your expenses means there’s now a good sense of where your money goes. This will give you a clear picture of your spending patterns. Where do your priorities lie? Mindlessly spending huge chunks of money on unnecessary things? Don’t go shopping without a shopping list. Avoid impulse buying and emotional buying. Avoid purchasing using emotions and using logic to justify it. Be intentional with your purchases. If it’s not on your shopping list in the first place then it’s not a necessary purchase. Try and be faithful to your budget. Therefore, create a budget which puts emphasis on your needs.
3. Cut costs, reduce debt
For those already in financial doldrums and being washed away by debts, putting your life back on track will probably be one of your greatest challenges. Reduce your debt and spend less than your earnings and get to know and study your spending habits. Cut costs and allocate a portion of those savings into paying off your debts. Plant vegetables on your balcony to reduce money spent at the grocery store. Kick your addictions. You know your poison. Start by cutting back gradually until getting to the point where one can do without it and save that money. For those who do not have any debts, reconsider before guaranteeing someone that loan, or even taking one yourself.
4. Save and supplement your income
Take care of your future by saving. Saving enables one to prepare to spend in the future along with being able to live comfortably throughout your whole life. Find ways and means of supplementing your income. In this digital era, opportunities to advance your economic situation remain endless. There is power in a dual income. Most people have set-up small businesses to bring in additional funds. It’s admirable in that they’re setting up base for their financial wellbeing in the present time. However, they need to put in place structures and systems that will ensure the business can run with little input from them and embed sustainability in the long run. To do all this, one might require some assistance from a consultant.
Having established a surplus fund, develop concrete financial goals. A financial goal could be buying a house, saving for your retirement, furthering your studies or even buying a car. Prioritise your goals and allocate realistic time frames for achieving each goal. Goal setting sets direction by establishing targets which provide an individual with a structured approach and motivation to achieve the goal.
5. Develop an investment manifesto
Overall, your choice of investment will be informed mostly by the disposable time in your possession as well as being guided by existing and new goals that one want to achieve in the short, medium and long term. There exist two types of investments; active and passive. Active investments need your daily participation and require a lot of time and commitment. Passive income, on the other hand, requires little if any daily involvement. Active investments encompass, owning livestock, running a small enterprise, and agribusiness. Passive investments consist of owning financial assets including treasury and corporate bonds, treasury bills, investing in the money market funds and unit trusts. The returns on these passive investments continue to be generally very stable. Develop an investment manifesto, an ultimate guide that gives direction on what investments to make, in the short term and long term.
6. Establish your current financial position
The best way to do this would be by using a net worth statement. A summary of your assets and liabilities. Your assets comprise the acquisitions that bring an income. Liabilities, on the other hand, covers financial obligations owed to other people, for instance, debts. Your assets should always be more than your liabilities. Where this isn’t the case try to cut down your liabilities. To benefit from the capacity to dictate the direction where your finances go, one needs a properly structured financial education session. The five critical areas needed to be well conversant will encompass money and income, money management, saving and investing, debt and your spending habits, as well as risk management.
