Behavioral Biases and Finance: How Our Attitude Toward Finances Can Impact Our Overall Financial Wellbeing
Financial Literacy Month is celebrated every year in April to increase awareness around personal finances and money management habits.
In honor of this important month, let’s cover a topic that is critical to managing our finances: attitude – particularly, self-control bias.
Self-control bias is a behavioral tendency to neglect long-term goals due to a lack of self-discipline. Put simply, it is your attitude or mentality toward assessing current needs relative to future preparedness.
Self-control bias shows up in the form of prioritization; it’s what we do or don’t prioritize that ultimately affects our decision making and end results. For example, maybe you want to get into an exercise routine, but don’t prioritize it. Or, maybe you have created a beautiful budget tracker, but the newest seasonal apparel at your favorite store throws your budget to the wind. Whatever it is for you, sometimes self-control bias gets in the way of us accomplishing our goals.
There is a ton of prescriptive financial advice out there, such as maintaining a budget or saving for retirement; however, what doesn’t get talked about enough is our attitude and behavior towards finances. Attitude can play a critical role in making decisions and can influence overall financial well-being. Let’s explore ways that you can “master” your attitude.
Instead of looking at your budget as punishment, consider it a tool to help you save enough for your next vacation! Or, start paying yourself first by setting aside dollars for your retirement so your future self can give you a pat on the back. Budgeting can also help you to be in a position to be generous with your money. There can be a deep level of satisfaction in taking someone out to lunch or giving to a local organization you care about. Mastering your attitude around your budget can bring a lot of self-fulfillment.
Ultimately, one of the most powerful tactics to overcome self-control bias is to keep perspective in mind. Perspective can help you to maintain control in the moment and not succumb to your emotions and impulses.
Next time you’re thinking about making an impulse decision to satisfy an immediate need, here are some tactics to consider to maintain perspective:
- Pause and take a breath.
- Ask yourself a few questions – will this expense materially enrich my life? Is this purchase or expense aligned with my goals and vision for wellbeing? Will I look back on this purchase with pride or remorse?
- Remember that you are in control.
- Phone a friend. Having another opinion can help us stay grounded and in alignment with our goals.
Happy Financial Literacy Month!
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About the author
Investment Advisor and Financial Wellness Specialist
Michael is an Investment Advisor and Financial Wellness Specialist focusing on providing employee education and partnering with clients on financial wellness strategies. He possess a depth of knowledge on employer sponsored retirement plans, particularly the 401(k), and has a broad range of financial knowledge on investments, high-level tax benefits of various retirement accounts, and savings strategies. Previously, Michael worked at a top producing advisory firm where he built financial plans for families and businesses as a Financial Planning Specialist. Connect with Michael on LinkedIn.
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