6 Mindset Shifts That Help You Make Better Financial Choices

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Many of us feel powerless over our financial situations, trapped by fixed salaries and high living costs. It's easy to believe we have no control over our financial destiny. But there are certain mindset shifts we can adopt to improve our financial management.

1. Understanding the Power of Perception

Research suggests that fostering a sense of control can significantly enhance our financial well-being. A study from Stanford University, published in the Journal of Consumer Research, revealed that individuals who felt more powerful were inclined to make better money-saving decisions.

In the study, participants were divided into two groups: "leaders," who sat in tall chairs, and "followers," who sat on low ottomans. When asked about their savings preferences, the leaders chose to save between 34% and 42% of their income, whereas the followers saved only 13% to 18%.

The study concluded that feeling powerful motivates people to make decisions that sustain that feeling of control, including control over financial situations.

While the solution isn't as simple as sitting in a taller chair, the underlying principle is clear: cultivating a sense of empowerment can drive better financial decisions. As financial therapist Amanda Clayman suggests, we should focus on the aspects of our financial behavior that we can control.

2. Small Choices, Big Impact

Making small, deliberate choices can significantly impact your financial confidence.

As Charles Duhigg explains in his book Smarter, Faster, Better, motivation is sparked by choices that reinforce our sense of control. The act of deciding to save money, even in small amounts, demonstrates self-determination, which is a powerful motivator.

3. From Budgeting to Spending Plans

Traditional budgets can feel restrictive, much like diets. When faced with the choice between adhering to a budget or attending a Beyoncé concert, many of us might abandon our budget.

Instead, consider adopting a spending plan. A spending plan is like a budget but focuses on supporting meaningful goals.

4. Setting SMART Goals

Effective financial planning involves setting SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals. Here's an example:

• Specific: Pay off a $10,000 student loan.
• Measurable: Track progress via your online loan account.
• Achievable: Cut back on restaurant spending to save $277 monthly.
• Relevant: Free up income for more meaningful spending.
• Time-bound: Pay off the loan by 2021.

Creating subgoals and rewarding yourself upon reaching them can maintain motivation. These rewards don’t need to be extravagant; small treats can help keep you focused and motivated.

5. Reflecting on Your Money Memories

Our early experiences with money often shape our adult financial behaviors. Reflecting on your first money memory and the emotions tied to it can provide insights into your current habits.

If your parents frequently argued about money, you might have learned to avoid it, associating it with conflict. This could lead you to neglect budgeting, spend carelessly, and hesitate to ask for raises. According to Clayman, our adult attitudes toward money often reflect our early experiences, as our first money memories carry significant emotional weight.

6. Active Engagement with Your Finances

Automation can make financial management convenient but may also lead to disengagement from your money.

Instead, engage regularly with your finances. Unlink stored credit card information, review your budget daily, and consider using cash to make transactions more tangible. Regularly interacting with your money helps cultivate a stronger sense of control and awareness.

Conclusion

Ultimately, personal finance is exactly that—personal. The strategies that empower one individual may not work for another. The key is to experiment and discover what methods best reinforce your sense of financial control, leading to smarter money decisions and a more secure financial future.