Personal finance is a subject that always crops up in our lives, particularly when we are faced with financial stressors. We’re told the answer to successful personal finance is to acquire more knowledge – to learn how to save money or invest wisely in the stock market. However, this advice is flawed, as personal finance is a mere 20% knowledge and 80% behavior.
It’s really about the little things we do every day – whether we choose to cook dinner at home instead of ordering a takeaway, or if we decide to buy basic goods instead of indulging in luxury items. It’s the small behavioural changes that have a big impact on our finances.
When you think all the way back to your first introduction to financial knowledge, you’ll recall learning how to draw up a budget. This made sense at the time, and it is still valuable advice. But, even though each individual budget is distinctive, it’s only 20% of the story. The other 80% is about the behavior behind it. The fact that you must agree to stick to that budget, for instance.
Personal finance is all about the routines, habits, and behaviours that impact our finances. If you have fantastic and sound financial knowledge, but no behavioural foundation or infrastructure, you’ll have a hard time managing your money. Budgeting, saving, and investing approaches are seen as resolved equations. However, if you don’t have the behavioural practices in place, you’ll be unable to maintain them.
It’s not always easy to make these behavioural modifications, and it can take time and energy to develop good habits around personal finance. However, the outcomes can significantly improve your financial future. If you’re struggling to make financial progress or have a history of overspending, examine your daily habits and routines. What small adjustments can you make that will have an impact on your situation?
Here are four examples of how behavioural changes can help you achieve your financial goals:
1. Instead of starting your day with a coffee from your favourite cafe, invest in a coffee maker and enjoy a homemade coffee. This small change will save you hundreds of dollars over the course of the year.
2. Choose to make a meal at home instead of opting for takeout. Preparing your own food can save you money and can be healthier too.
3. Start a small business that will help bring in more income. This could be anything from tutoring to freelance writing.
4. Prioritise saving money into your emergency fund and avoid using credit cards for everyday purchases. This way, you’ll avoid unnecessary interest charges and will have a financial cushion in case of any unexpected expenses.
To summarise, personal finance is primarily about behaviour change. It’s important to develop good habits and routines that will help you achieve your financial goals. While knowledge is important, it’s the behavioural changes that will have the most significant impact on your financial success. Consider what small yet impactful changes you can make today for a brighter financial future.
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