We know how to manage our money but what prevents us from doing so?

We know how to manage our money but what prevents us from doing so?
08 July 2013

For the vast majority of us poor financial decisions are not due to a lack of knowledge, we know that we should save for a rainy day, resist 'retail therapy,' the earlier we start investing the better, and buy life experiences instead of material items. But most of us still fail to manage our money effectively.  

So the question is; we know how to manage our money but what prevents us from doing so? 

We want it now

To overcome the need for instant gratification and the “I want it now” syndrome it helps to look at why we act against our own long term best interests and goals. And often, particularly with impulse buying we do it due to lack of money consciousness and willpower. Returning home with an unnecessary and expensive purchase, we are much more likely to say to our partner “I couldn’t resist” than “I was too lazy and selfish to resist.”

It may sound boring but planned shopping is the best financial policy. Make a list before going to the supermarket and you may resist impulse spending, which can be as much as 40% of your final purchase. Get clear on what clothes you will buy before heading to the mall.

Consumers who know precisely what they want are probably less likely than others to indulge in impulse buying, and in general are probably less vulnerable to influences from sales personnel, advertisers, and the like. 

We don’t track what we spend

I never used to track what I spend my money on and where I spend it, but when I started to it was the biggest eye opener. I initially committed to tracking every cent I spent for 6 months. I bought a pocket-sized notebook, made some columns and carried it with me everyday. It was shocking to discover how much I was spending each week at café’s and restaurants, on groceries and so on.

The process made me much more conscious of what I consume and why and I’ve now been tracking my spending behavior daily for several years.

It has not made me a tightwad or ‘stingy’ but it certainly has helped me have better control over my finances and the gaining of financial clarity has made me far more appreciative of how and what I consume. It also gives me a greater amount of satisfaction, and yes joy, to know I am in control of my finances.

Greater life satisfaction

In my behavioral finance studies many scientific researches have indicated that how someone handles their money (i.e., do they repay credit card debt on time, track their purchases, or save money regularly?) has a great influence on their feelings of security. And lets face it we all know when we feel more secure we experience increased happiness and life satisfaction.

So to go back to the initial question and add a little to it; we know how to manage our money but what prevents us from doing so? And if people that manage their money are happier, more satisfied with their lives, and experienced less negative emotions wouldn’t it be far better to track our spending behavior and make lists before we go shopping? What have you done to improve your spending patterns?


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Head of Behavioral Finance
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