Understanding Your Behavior to Reach Financial Freedom

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For some, resisting the need to splurge on shopping can prove challenging. Whether it’s on bargains or the latest designer must-haves, certain people just can’t resist. Then there’s those of us that feel a compulsive urge to save and shun shopping sprees in favor of keeping the bank account in check.

So, if you fall into one of these categories, you may feel like your spending habits are restricting you. Those who spend may struggle to fund significant purchases like holidays and cars. Where savers could be hampering their ability to enjoy some finer things in life and treat themselves now and then.

There is no right or wrong answer. However, different extremes can impact our everyday lives. So how do you tweak the way you spend to ensure you get the most enjoyment out of your money? To help, we’ve compiled a list of hints and tips to help you understand your behavior and reach financial freedom.

financial freedom

If You’re a Spender

We’ve all been there at one point or another when we treat ourselves to a shopping haul. It makes us feel great in the moment and releases those feel-good hormones. However, if this is a weekly occurrence for you, it may be time to reflect.

Firstly, it’s important to understand what it is that’s compelling you to spend. A psychological study on consumerism found that when we experience something unpleasant an area of the brain called the insula cortex is activated. The study linked this to how we spend and found that those who splurge have less insula compared to those who save. Spenders, therefore, feel less guilt and fear when on a shopping spree which can really impact those purse strings.

So, if this is having a real impact on your bank balance, how do you overcome it? Here are a few simple changes you can make.

1. Withdraw Cash When you Shop

Yes, it may seem like an inconvenience, but it will prevent you going overboard on your card. Withdraw the cash and leave your debit card at home. You’ll then have a serious budget to stick to. This will help you to plan your shopping trip more strategically. Instead of shop hopping as you please, you’ll be more focused on buying the things you need.

2. Get to Know Your Triggers

Think what compels you to spend. We all have certain triggers that make us do things and understanding those that make you shop can really help. There are plenty of different factors that affect people differently, here’s a breakdown of the most common:

● Mood: when you’re feeling low, do you find yourself heading out for some retail therapy?
● Environment: Are there specific places that make you want to spend? Markets, craft fairs and shopping centers are all big offenders
● Peer pressure: You may think that you’re over this, and it’s something that happens on the playground, but you’d be surprised how ‘keeping up with the Joneses’ can damage your bank account
● Lifestyle: When you’re used to a particular way of living, it can be hard to maintain if you run into financial problems.

3. Keep an Eye on Your Spending

It’s surprising how things can add up when you’re not paying attention. Uber rides, morning coffees and treats here and there can cause all damage the bank account. Print out your bank statement monthly and have a look at your spending habits. It may come as a shock to see that those ‘harmless coffees’ are draining your account. Think what you cut down on.

Mint is a handy, free app that helps you to keep an eye on your savings. It’s super easy to use and gives you a full breakdown of your finances in one place.

4. Find Extra Ways to Boost Your Income

If you’re concerned about how much you’ve spent over the past year, then why not explore ways to make some back? By having extra streams of income, you’ll feel more financially secure, and it can be really simple too. The online auction site, eBay provides an easy, hassle-free way to sell your belongings (old and new). This is just one example of many, so check out this handy article on 50 ways you can make some extra cash.

If You’re a Saver

You’re definitely in the safer camp when it comes to personal finance. However, never spending can prevent you from certain experiences and necessities. Opting out of insurance policies or warm winter boots to save money isn’t always the best option.

By taking a step back and bringing more balance to your spending, you’ll find it can really pay off. Shopping may make you feel uneasy, but there’s nothing wrong with treating yourself now and then – after all life is for a living.

To help give you an idea of how you can tweak your habits to give you a bit more financial freedom, here are a few tips.

1. Open a Guilt-free Bank Account

As a saver, you’ll like to keep track of things. Therefore, having a set place for your ‘spending’ funds can work well. Think about the amount of money that you can afford to set aside each month (set your own budget). Then when you see something you like or a holiday you want to book, you’ll feel less guilty spending as there’s money in the ‘guilt free’ account.

2. Work on a Reward Basis

Say you get a promotion at work, or you pass a course – treat yourself! You deserve it, right? This works particularly well for savers as it helps to justify purchases they wouldn’t usually make.

3. Talk About Spending

Not in a crass way but talking to others about a purchase you’re going to make helps to seal the deal in your mind. For example, if you’ve wanted to go to Thailand for years and have the money to do it, talk about it. Tell people that you’re thinking of going and they’ll more than likely encourage you. Once you’ve vocalized your intention, it makes it much easier to press ahead with that purchase.

To Sum Up

No one’s perfect and we all have habits we wish we could break. Whether you dread shopping or revel at the thought of a splurge, it’s important to have balance. Take a step back, think about the financial changes you want to make, and develop a plan. As money plays such a large part in our lives, some simple changes for the best will have a positive impact on not only your wallet but your mindset too.

28 thoughts on “Understanding Your Behavior to Reach Financial Freedom”

  1. Awesome post, Brian. It took us quite a while to realize how emotional triggers were impacting our money management. Although we are largely over that now, we do have a goal this year to pay for our groceries with cash. I find it easier to poo-poo our grocery budget limits because, after all, I HAVE to feed the family. 🙂 And we do spend less than “most people” on groceries, even when we go over our limit. Finance management seems to always be a work in progress, but one that is well worth the effort put forth.

    • Thanks, Lauire. Finance management is constant work, and that’s where so many fail because they give up or give in after awile and slip back into old bad habits.

  2. Great post! I realize I can’t walk into a Target without buying stuff that I didn’t come there to buy. It’s such a trigger for me. Best to avoid that store as much as possible! I do the same thing with spending as I do with food. I try to figure out the triggers for the “bad food,” i.e., boredom or stress relief for me. Stuff to tackle! 🙂

    • Best Buy is one of those stores for me. 🙂 Food shopping with a list has helped me stop impulse buying needless or trigger foods, but still, somehow they still find a way into the cart.

  3. This is great! I was always an over-saver. This is generally applauded in the PF community, but it’s not ideal. I’ve been working at feeling less guilty about spending money when it makes sense. It’s not an easy habit to break, though.

    • It’s great that you have the saving down, but you need to have a little wiggle room in the budget for some fun things too. All about finding the right balance that fits you.

  4. We use a ‘guilt free’ bank account for spending, although it is more conceptual than an actual account. We call it our “sunshine fund” and it’s like an annual, personal allowance.

    • An account like this or fund is even more important in the case of someone like yourself who reached FIRE. Both in terms of keeping an eye on spending, and enjoying yourself.

  5. Happy New Year, Brian! This is a great topic to start off 2018!

    I’m with Tonya on Target. Perhaps they release feel-good pheromones into the air. And I’m sure the Starbucks scents permeating the space is by design. I can only shop in there if I don’t use a cart (for clothing I really need) or with a hand-held basket (for cleaning supplies).

    I definitely spend less on groceries when I use cash. But since I often have to force myself to spend money on wants, I allow myself leeway with groceries. There’s a mix of psychological messages involved with food consumerism: comfort, abundance, control, etc.

    • Thanks, Mrs.G, same to the Groovies! Target I think is just one of those stores, brightly lite, well organized, and has everything you need. We try and avoid it too. 🙂 Groceries even with my list is a battle, I often find myself using out three kids as an excuse to buy things we don’t need.

  6. I recently sat down with two colleagues to talk finances, and I found out that one had the “saving problem” you refer to. To me, it’s so surprising! If you have the money, you’ve got good overall financial health, and you want something, what is the block? I find that fascinating – because of course, I’ve been working on the “spender problem”. Thanks for addressing this, Brian. Maybe people on either side of that issue who are trying to overcome their particular problem can offer help and insight to those on the other. For my part, I told my problem-saving colleague that for homework (hey – we’re all teachers), I wanted her to take note of what made her feel alive. She accepted the assignment happily, hoping it will help her to get rid of her spending guilt. I hope it will be a good starting point.

    • Great, you’re having these open money discussions. That’s part of the issue for many we just afraid to discuss the topic with others to get feedback and opinions. I hope the homework get a good grade. 🙂

  7. This is gold! As a saver, I tend to beat myself up anytime I spend money, even if it was on things I needed. I’m really trying to work on that mentality this year, as I think it stems from some financial fear I must have. I love the idea of the guilt free spending account. Definitely something I will implement this year.

  8. While I still have a couple of spender habits, I’m definitely more of a saver. My wife urges me to reward myself or splurge once in a while, so that helps. But I love your tips for both sides, because balance is what’s important.

  9. Getting to know your spending triggers is super helpful. Avoiding things like the mall, shops, advertising on TV or advertising in magazines can all be very helpful at avoiding the urge to spend. Even walking a different way to work to avoid a coffee shop can help you avoid the urge to buy a coffee every day.

    Another thing I learned recently is how much we base our current decisions on past decisions. We normalize our behavior based on what we did in the past. Randomly dropping $150 on clothes (even when you don’t NEED them) seems normal because we did it before. Sometimes a “hard reset” is necessary to break that cycle. This is why I love the “no spend” challenge for 30 days. This is a great way to reset our behavior.

    • Great point Owen. Our past behaviors play a big part in our future spending habits, sometimes we are mindlessly spending. Tracking all expenses by saving all receipts is a great way to identify these gaps.

  10. Nice, Brian. Great things to talk about for spenders and savers. On the spender side, I particularly like trigger regarding peer pressure. That was a big problem for me in my 20s and 30s. I had a modest salary compared to my friends. And the pressure to keep up on the entertainment front (had to have season tickets to the Islanders, for instance) led to a lot of credit card debt. Sheeesh! Moving down to North Carolina made it far easier to save. Haha. I had no friends.

  11. Definitely a saver here. I’m frugal which I define as only spending on things that I value but there are times I cross the line over into being just plain cheap…as in not spending…even if it’s worth it. That frugality has been ingrained in my head for a long time, but sometimes I need to give myself permission to spend especially when it’ll save me time, bring me time or just makes my life easier!

    • I struggle with some of those things too. I still clean the house and cut my own lawn, but would it be worth a small cost to gain back my time?

  12. Great points for each financial tendency. I agree that, as a saver, it’s good to talk about big dreams and ideas with others, which you might talk yourself out of needlessly. Something that has been huge for me has been coming up with a realistic view of money is for. I used to think it was to be saved as much as possible. So when unexpected expenses arose, I’d stress even though I had the money! Finally I accepted that that’s just life, and part of what money is for.

    • I had the same feelings one we had an emergency fund saved. I didn’t want to part with it for any reason but had to realize its there for the unexpected and it was okay to use it.

  13. Great topic. Behavior is so much more important than the math. Far too many people try to chase investment returns thinking that’s their #1 path to success, when stepping back to understand themselves, and their actions, is just as important (or more so).

  14. It’s excellent how you looked at both sides of this and how some behavior changes could make big a big difference. I’ve never thought of a guilt-free account to use – but I like it! We aren’t big spenders, but putting some money aside would allow us some wants – instead of just thinking about needs. I may try it once our house reno is done. Right now, everything is a need just to get it done 😉

    • Thanks, Vicki. Looking forward to your update on the home. That sounds like a great time to put a guilt-free account in place and balance the spending.

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