Did you know that personal finance represents 80% of a person’s behavior and only 20% of their knowledge? Financial expert Dave Ramsey has noticed this pattern – in most cases, people are driven by their desires. If we adequately evaluate our behavior and how it can affect our financial situation, money will not be the first problem to provide for all of life’s needs. There are certainly several habits that hurt personal financial well-being.
Excessive spending of money is a common phenomenon that brings about certain difficulties. When your cost item exceeds your income, and you also utilize credit funds, it will lead to money lessness in the future. You become dependent on constant debt repayments. Planned financial goals are increasingly difficult to accomplish without a proper budget. This tactic ensures you do not have savings in any form.
Having a large amount of money debt also hurts a person’s personal growth and financial independence. You lose the ability to invest in yourself and your needs, and there’s also a chance of financial stress, which is a sign of detrimental behavior. A high-interest loan debt will cause you many problems, which entails spending money every month to pay it off rather than fulfilling your desires in the future.
Analyzing individual financial categories is one of the most common human behavioral biases. This situation occurs when a consumer divides money into separate parts. It is recommended to do extensive money counting and spending solely based on the overall financial situation. A mental calculator to count discretionary spending, savings, and investments in a particular currency, will lead to irrational and considered decisions without impulsive acts.
Saving is the cherry on the cake for most people. Many people cannot accept losing money for various needs, thinking it will somehow affect their finances. They avoid seeking ways to acquire a significantly higher income as an easier option. This misconception pursues some because they are unwilling to take risky steps that may have more probability of leading to a better financial situation.
“I’m like everyone else” is a ridiculous behavioral decision that greatly affects personal finances. This category of people gets too preoccupied and obeys herd instincts, focusing on the majority’s actions while ignoring their desires and goals. And there is also the possibility of making many mistakes because, relying on public decisions, you do not do individual research.
Nevertheless, if you adequately assess the situation, discarding all prejudices and suppressing all negative behaviors, there will be a chance to improve your financial situation. Regularly practicing income-based budgeting promotes fundamental and long-term well-being. It is worth noting that it is reasonable to consider several strategies that will help you realize the real situation. First of all, you should:
- Rationally distribute money after paying taxes and mandatory payments. It is the key to successfully understanding personal finances with a net profit in mind.
- It is good to analyze the current expenses that you make regularly. Doing so will identify the financial area where you can minimize them. This way, it will be clear why you are making rash spending.
- Investments or a personal fund is an opportunity for a promising and secure future. Accordingly, the goals should be within the real profit.
- Planning – the next step on the way to financial independence. A clear categorization of expenses will give you a clear understanding of your income and expenses. You can also use the pocketguard budget app or virtual spreadsheets for the big picture.
- Flexibility and adjusting expenses during the week. Manage your plan according to the available budget. You can make changes when necessary.
Personal financial growth depends on behavior, without exaggeration. Focusing on the most basic things like making a budget plan, investing, and “money for dreams” increases the chances of real results in personal finance. Avoid the gross and damaging behaviors associated with incorrect biases, accumulation of difficult-to-close loans, and lack of balance between expenses and income! Being financially educated and following the above guidelines will help you achieve and develop the right financial behaviors.