How to get better with money
Money management is something we all struggle with at some point in life. Whether you’re just starting out or you’ve been managing your finances for years, I’ve put together some tips on how to become better with money and how to take control of your environment.
How to make better money choices?
How you use your money is determined by how much you are influenced by the environmental cues around you and thus, how you make better money choices. Becoming better with money has nothing to do with how smart you are, how much you earn, what school you went to, or what job you have.
When I refer to “environmental cues,” I’m talking about a raft of big and small factors that combine to influence our day-to-day processes around making better money decisions.
Let me show you what I mean.
The dangers of credit cards and BNPL
Credit allows consumers to more easily make impulsive financial decisions. Cash is strict, so absolute, whereas credit gives you the option to break your budget in order to give in to temptation.
When you have $200 in cold hard cash and nothing more, you’re forced to stick to that figure, so you just don’t go home with that $499 TV; but when you have credit cards and buy now pay later (BNPL) options like Afterpay and Zip, suddenly owning that TV becomes a viable option, and you won’t have to pay for it until later. But then later comes.
Beware of sales techniques
Environmental cues influence our money habits. Every day, we’re being subjected to 4,000 to 10,000 advertisements, and we don’t notice because we’ve grown used to it. This ranges from TV, radio, social media, podcasts, sides of buses; the list goes on!
Our best way to combat this is to be aware of it. Break the advertising illusion and be one step ahead.
Advertising tricks to be aware of and how you can beat them
To beat the sales advertising teams at their own game, the first step is knowledge. Knowledge of what to be mindful of; knowledge of their tactics; and knowledge of how to overcome temptation.
Retailers are masters at using environmental factors
Milk is one of the most frequently bought items in the supermarket, is always positioned at the back of the shop and never near the bread. Separating popular products means that shoppers have to wind through the supermarket past hundreds of temptations.
You can overcome these in-store temptations by shopping online. Online shopping allows you to easily keep track of your total spending so you won’t be shocked or feel pressured when you get to checkout. Some grocery store online systems even allow you to sort items by unit price, meaning that you’ll be able to see the best value for your money, or you can take your time browsing the specials list.
Payments made easy
Ease of payment methods result in ease of spending. Back to the previous example, when you have $200 in cash, you’ll notice when you’ve spent a portion of it because it will tangibly change in the palm of your hand. When you pay by waving your phone, credit card or BNPL, nothing physically changes hands, so your spending totals are less noticeable. Retailers know this and it’s in their best interest to make the payment method as seamless as possible.
Sales are a form of environmental manipulation
Presented with a short-term discount, shoppers are more likely to buy. According to PayPal, nearly 60% of Australians report making impulse purchases online only because the item was on sale. Nearly 20% of shoppers say they feel like they’re losing money if they don’t buy a discounted item! By unsubscribing from mailing lists, you’ll be less tempted to spend money in big flash sales. Out of sight, out of mind.
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Some companies may also pretend to have a product with a high base price that they rarely intend to sell it at, and then put a dramatic line through it with a significantly lower “sale price” beneath it. This tactic is commonly referred to as price anchoring.
So how can we become better with money when we’re surrounded by all of this?
Look forward, not back
For anyone who has ever experienced credit card bill shock, you’ll know that it’s like stepping onto the scales and being told how many calories were in the meals you ate four weeks agoーinteresting information, but not much you can do about it now.
At MyBudget, we take the opposite approach. We want people to be able to see all of their finances, all of the time. Add a new bill to your budget or make a change and you’ll instantly see your projections update. This way when a recurring bill, like your car registration, for example, comes in the mail, it’s accounted for and not creating unnecessary financial stress.
MyBudget clients can, of course, pull up all of their historical transactions. This is important for good record keeping in order to create better money decisions. But it’s not hard to understand that relying on bank statements to manage your money is like trying to drive forward while looking in the rear-view mirror. This is what causes a lot of people to feel financially stuck or to form the opinion: “I’m no good with money”.
In his TED Talk, psychologist Dr Daniel Gilbert explains that humans tend to give themselves self-limiting labels ー “I’m an introvert”, “I can’t use a computer”, “I’m no good with money”. These definitions, based on past experiences, form what Dr Gilbert calls “end of history illusion”. It’s where you imagine that the person you are now is the person you’ll be for the rest of your life.
Take those financial goals and reverse-engineer a path to achieve them. That’s what we do at MyBudget. We create customised budgets that lay down a clear path to our clients’ financial goals. Then we automate the process. In essence, it’s a method of environmental engineering that helps people fast-track their financial future; an answer to the age-old question “how to become better with money”.
Gamify the system
The good news is that you don’t need to create an entire game plan all at once. The key, according to ‘Atomic Habits‘ author, James Clear, is to get just 1% better every day. How? Little-by-little, by making good habits easy and bad habits hard.
For example, would you like to spend less money on, say, takeaway food? James Clear would tell you that the first step is to make eating at home easy by stocking your freezer with meals made from leftovers. The next step would be to make eating out harder by setting a set money limit on your weekly takeaway expenditure.
Automate your money
Automation is another powerful tool at your disposal. Systems that require constant touching or mental effort are more likely to break. Automated money systems, on the other hand, are a powerful way to achieve your goals on “set and forget.” In the investing space, one example is Raiz, an app that automatically invests your spare change ー and I’ve already mentioned MyBudget in terms of payments, savings and goal automation.
Automate your savings too!
Once you’ve managed to reduce your debt, you’ll notice a lot more excess cash at your disposal—this is dangerous! When you have excess funds, it’s easy to fall back into old habits of spending and indulging. Give yourself a budget of spending money and consider automating the rest into a savings account. You’ll forget it’s happening and when you suddenly remember to check that nest egg you’ve been slowly building, you may be surprised by what you’ve managed to achieve without even realising.
Set financial goals
If we think back to the concept of tangibility, setting financial goals will help to keep you on the right path. Your first goal might be to set up an emergency fund or to pay off credit card debt and improve your credit score. Setting savings goals and reaching them will make the money tips worth all of the hard work you’ve put in, and your extra money will soon be working for you when you’re on that holiday cruise or buying your first home.
So as you’re thinking about creating positive environmental cues for yourself, remember to focus on these four factors:
- Make good habits easy and bad habits hard
- Formulate simple rules
- Look towards the future, not the past
- Automate where possible
By setting goals and sticking to them, you’ll be able to see exactly where your money goes each month. MyBudget has helped over 130,000 Australians with their finances, helping them to reach their budgeting goals and paying their bills on time. To learn more, you can call us on 1300 300 922 or enquire online.
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