All the things that makes up your personality—your values, experiences, and culture—directly influences your spending habits more than you’re thinking that.
“Financial psychology is concerning the humanity of cash: how people think, feel, and behave about their money [and] their relationship to money previously, present and future,” said financial psychologist Preston D. Cherry, who is also a certified financial planner and founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.
Who you’re affects what your money does and where it goes, says Cherry, who is a member of CNBC’s Council of Financial Advisors. Certain types of social conditioning, akin to budgeting, also come into play in people’s spending habits.
Budgets aid you cope with inappropriate financial behavior or areas where you wish control, akin to overspending or spending leaks. Nonetheless, they’re inherently restrictive, he said.
“Psychologically, ‘budgets’ sound restrictive. “Spend plans” sound a lot better – they offer you so way more freedom and suppleness,” he said.
Spending plans work like a sort of “reverse budgeting” where you’ll be able to save and invest to your future while providing you with the chance to enjoy life in the current.
“It’s about allowing yourself to begin the stage of life you are in after which move on to the following one,” Cherry said.
The way to “let your life run your money”
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To enhance their financial health, Cherry urges people to be purposeful and aware of their money-related thoughts and actions through what she calls her “6-A Alignment System”.
The primary three Aces are about summarizing and setting intentions:
- Admit where you’re in your journey. Start your financial journey quickly by being honest with yourself about where you stand. “Everyone’s journey is personal and unique, like a thumbprint,” he said.
- Recognize how you’re feeling about it. Gracefully and compassionately recognize your emotions about where you’re.
- Take motion in your life. At this stage, you’re directing your energy towards your goals and “moving forward together with your vision, your life project,” Cherry said.
“Then there are the following three Aces: level up, aspire and achieve,” he continued. “By aligning the desires of your life, attempt to do these items, after which strive to attain them.
“It’s a process,” Cherry said.
He said financial empathy pays off over time.
“You begin with financial compassion. Once this process is complete, you’ll be able to move on to financial education,” he said. “Then you’ve got financial literacy, which is conscious behavior and decisions.”
“All because you’ve got given yourself financial compassion, you reach that state of balance where you let your life run your money, and never your money run your life.”