A few weeks ago I heard someone say this when teaching about finances: “When we change the way we think about money, it will change the way we handle money.” This statement made me stop and think because I realized that it is so true. I know that when I changed the way I thought about money it had a huge impact on how I handled it. Much research has been done to show the effect of your thinking on your actions and the corresponding results in your life. I won’t go into that here, but I’d like to offer a few examples of some thought patterns that could be changed for a better financial outlook.
Old Thought: What monthly payment can I afford?
New Thought: What will the total cost be?
This is most often seen in the car or house buying process. Car salesman love to try and get you a monthly payment you like, but often charge you an arm and a leg for the car in the process. Obviously paying cash for a car is the ideal, but if you are going to finance one, you need to look beyond the monthly payment. The goal should be to eventually pay off the car, so the total cost should be your main consideration. You might be able to get a nice car for $200 a month, but be paying it off for 10 years. If you switch your focus to finding a car you can pay off as soon as possible rather than just a monthly payment you can afford right now, you’ll be more likely to make a wiser decision on the car you buy.
Old Thought: How much money do I have left in the budget to spend?
New Thought: How much leeway room can I get at the end of the month in my budget?
If instead of seeking to allocate every last penny in your budget to spending you try to leave as much leeway room as possible, you will likely have more than enough money left to be saving for retirement, for an emergency fund, and even just for unexpected expenses. When I first got out on my own and started budgeting, I had the old thought of spending every penny I made because I didn’t really know any better. After 2 years of doing that and ending up in the same financial situation, I decided it was time to change.
Old Thought: Can I afford it?
New Thought: Is it worth spending my hard earned money on?
Whether or not you can afford it shouldn’t really be the question. There may be lots of things you can afford to buy but not all of them are going to be that important to you. If a purchase is really worth spending your money on then you have the satisfaction of enjoying that item at the expense of buying something different because you know you got what you really wanted. Of course, you still need to be able to afford it.
Old Thought: I want to find the highest salary I can make.
New Thought: I want to find a job I enjoy and if I need to I will make extra money on the side to supplement.
Life is not all about money and getting the most you can. Yes, more money means you can buy more things, but is that worth being at a job you hate? If you find a job that you enjoy, even if it pays less, you are going to be happy and more at peace than if you are stuck with a job you hate just for the money. Having the peace of mind that comes from a job you enjoy will open you up to be able to pursue side jobs you enjoy to make some extra money.
Old Thought: I need a raise.
New Thought: How can I make my current salary go farther?
Increasing your financial situation isn’t always about making more money. You can either get a $100 a month raise or cut your grocery spending down my $100 and come out just the same. In fact, the extra salary you make will be taxed, while the extra money you save will not be, so in reality you would only have to save $75 or $85 in groceries (depending on your tax bracket) to make up for the same amount a $100 a month raise will give you.
Old Thought: I’m too young to think about retirement.
New Thought: I’ve got time and compound interest on my side.
Instead of focusing on how much time you left until retirement (and how much you would rather spend than invest right now), focus on how much you will gain by investing even earlier. Compounding interest is an amazing thing and it’s even more amazing the more time you have. The earlier you start, the more likely you are to have a significant retirement fund when the time comes.
Old Thought: Charge it and I’ll find the money later.
New Thought: Do I have money in savings to pay for this right now?
Don’t let emotion get the best of you when you find an item you want to purchase right now. Make sure you know that you have enough money to pay for the item before you buy it. This will keep you from overdrafting your checking account if you pay by check or debit card, or it will make sure you are not stuck with a credit card bill in a month that you can not pay.
Old Thought: I wish I could save more money.
New Thought: I am going to save $xx in an emergency fund by x (date).
Instead of just wishing you could save more money, be proactive and set a goal for how much you would like to save by when. When you have a goal and something you are striving for, it is a lot easier to set aside that money and not spend it.
These are obviously just a few thought ideas that you could change regarding your finances. The sky is the limit when it comes to changing your own thoughts. A good idea might be to try and figure out which thoughts you have about money that are causing you to make unwise decisions and end up in financial trouble. Once you can pinpoint those thoughts that are holding you back, it becomes a lot easier to change them and set yourself on a path for success in your finances.
Image courtesy of Sidereal