I don’t know about you, but when it comes to managing my finances, I can often come up with a whole list of things I’d much rather do ... including cleaning out the fridge.
But, as someone who's studied positive psychology, I know that the first step in reaching new heights is setting a goal, and the hard part is sticking with your intention long enough to reach it.
With that in mind, I wanted to share four proven strategies to keep you on the path to wherever you're headed with your money. Consider these pointers on the psychology of money management.
1. Identify Your Motivation
What is it you really, really want? To answer this honestly, it helps to know where your motivation comes from, explain Richard Ryan and Edward Deci, psychology professors at the University of Rochester. There are two types of motivation that govern human behavior: intrinsic motivation, which means being driven from within or doing something because we find it personally enjoyable; and extrinsic motivation, which involves being driven by something outside of ourselves or an external reward (example: studying to get a good grade, not for the sake of learning).
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Get started with a free financial assessment.
So when it comes to managing your finances, the idea is not to think of it as a chore. Because if your motivation is extrinsic—saving for the sake of saving—then managing your money may always feel like a drag. But when you’re intrinsically motivated, you’re personally (pardon the pun) invested.
Start viewing money as a means to achieving your best life. Visualize what you’re saving up for—whether it's the down payment on a house or an exotic vacation hiking in the rainforest (or both). Maybe even tack a picture of your goals on your bulletin board at work or papier-mâché them on your piggy bank. Not only will you be working toward becoming more in control of your finances, you may feel more in control of your destiny.
2. Adjust Your Mindset
Henry Ford said it best: “Whether you think you can, or you think you can't—you're right.”
Translation: When it comes to staying motivated, mindset is everything.
In her book, "Mindset: The New Psychology of Success," author and Stanford University psychologist Carol Dweck describes the two types of mindsets: People with a “fixed mindset” usually believe that their intelligence, talents and other essential characteristics are unchangeable and pretty much as good as they’re going to get.
Meanwhile, those with a “growth mindset” tend to believe that their talents and abilities can be continually developed through sheer tenacity and hard work. They don’t view setbacks as doom and gloom but as learning opportunities. They’re less likely to lapse into limiting beliefs about their abilities or ever see themselves as failures—unlike those with a fixed mindset, who can constantly feel inadequate.
For example, a fixed mindset might say: "Are you sure you can do it?" "Maybe you don't have what it takes and you'll fail." Or, "You see, I told you it was a risk. Now you've gone and shown the world how limited you are."
The growth mindset, on the other hand, challenges those negative beliefs. Here's a contrast of the two:
Fixed mindset: "What if you fail—you'll be a failure."
Growth mindset: "Most successful people had failures along the way."
Fixed mindset: "If you don't try, you can protect yourself and keep your dignity."
Growth mindset: "If I don't try, I automatically fail. Where's the dignity in that?"
Breaking free from your fixed mindset means putting an end to all of that second-guessing, which, after all, only tends to lead to inaction. Next, let's find out how to work on taking bite-sized pieces out of your goals.
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3. Work SMART
When it comes to setting goals, there are the good, helpful kind, and then there are the big, amorphous ones you're never going to accomplish. Which would you rather set?
Well, luckily there's an easy, five-step process to setting a goal that may make you more likely to achieve it. It's called S.M.A.R.T, and here's what that acronym stands for:
• S = Specific: When you set your goal, clarify what you want to accomplish and how
• M = Measurable: Decide how to determine the extent to which each goal has been met
• A = Achievable: Evaluate all goals to make sure they’re reasonable
• R = Relevant: Make sure this goal ladders up to your overall objective
• T = Time Frames: Set target dates, and times, in which to achieve different tasks
So instead of saying, “I need to track my expenses better,” a S.M.A.R.T. way of reframing that goal would be, “I’m going to spend five minutes every morning foldering my transactions in the LearnVest Money Center.”
4. Buddy Up!
It's no fun to toil toward your money goals in isolation. First, it can be harder. Second, it may be lonely. Instead, consider combatting the isolation (and having something to look forward to) by scheduling a weekly “coffee break” with a financial buddy who knows your goals and can help keep you on track. One who will tell you: "No, you don't really need to buy a new iPhone. You're trying to save up for grad school, remember?"
The amazing thing is, just the mere act of facing a goal with a friend by our side can make it more attainable: In a 2008 study, researchers took 34 students to the base of a steep hill and fitted each one with a weighted backpack. Everyone was asked to estimate the steepness of the hill. All those who stood with friends gave lower estimates of the hill’s incline. And the longer these friends had known each other, the less steep the hill appeared—proving that no matter how lofty your goal, sharing it with friends can make it seem like less of a climb.
Stella Grizont is a positive psychology expert and the founder of WOOPAAH. You can sign up for her free well-being tips or take her online course, The Science of Happiness: Hacks & Skills to Flourish.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.