Changing The Way You Think About Money Management

At Money Crashers, there are two main goals that I am trying to achieve:

  1. Educate and inform you about managing money, investing, buying insurance, and spending wisely.
  2. Help you change your personal financial behavior.

If you are an informed consumer and you change the behavioral patterns that got you into a mess with money, then you don’t need me to guarantee that you’ll be wealthy someday. You can guarantee YOURSELF that you will be a winner with money in the future. The spirit of becoming wealthy is just as important is the methods and practices of becoming wealthy. You’ll never WANT to be a habitual saver until you really are a habitual saver. You’ll never get great deals on large purchases until you start changing the way you approach buying a large ticket item. It sounds simple, but what I am getting at is that personal finance has much to do with your personal behavior. One of Dave Ramsey’s famous quotes is that personal finance is 80% behavior and 20% head knowledge. That is why so many people disagree with some of the principles that he teaches, because he teaches them based on behavioral modification rather than mathematics. A good example of this is Ramsey’s teaching about paying off your smallest debt first, irregardless of what the interest rate. Math tells you to pay off the debt with the highest interest rate, but he believes that you will build momentum by paying off some of the smaller debts first. He believes that seeing yourself paying off debts will help change your behavior and encourage you to pay off ALL of your debt.

First and foremost, we must change the way we view budgeting and managing money. Our culture has been completely tricked into thinking of how many payments and bills we can take on given our take home pay. Our way of thinking is, “Okay, if I bring home $3,000 a month, then I can afford to spend $3,000 a month.” This way of thinking is why so many people live paycheck to paycheck and always feel like they are running in a financial hamster wheel. There is absolutely no hope, no passion, and no security when you live by the skin of your teeth.

Okay Erik, so how should I think about my money? You just need to reverse your way of thinking when it comes to doing your budget and thinking about how to handle your money. Instead of thinking about paying your bills first, think about giving and saving first. The minute you receive your paycheck, automatically draft out a certain percentage for giving to others and saving for the future. A great way to automatically save for the future is signing up for automatic withdrawl from your paycheck for a 401(k) or automatic withdrawal from your checking account for a Roth IRA or other investment account. But, you also need to be saving for short term purchases such as new appliances, a newer car, new clothes, and other large purchases that can be planned ahead of time. This type of saving will take more discipline, but if you get in the habit of SAVING some of your paycheck every month, then it will become second nature to you and you won’t even think about it after a few months.

You all know my thoughts about giving. I think that becoming wealthy is a very powerful thing, and with much power, brings much responsibility. Part of your responsibility as a consumer and a good citizen is to give back what has been abundently given to you. You’ll feel better about your money when you give, and the feeling of giving back is SO much better than any new toy can make you feel.

If you can get in the habit of paying yourself FIRST, then you’ll become a better giver and a better saver over the course of your lifetime. Habitual givers and savers become wealthy. If you don’t believe me, then research any billionaire in America and see how they manage their money. You find one that doesn’t give back and save on a regular basis, then post a comment to prove me wrong.