There are plenty of articles on the web that tell us the dos and don’ts of financial habits such as - “avoid eating out”, maintain a budget for spends”, “save first, then spend”, etc. However, only a few address the concern of how to go about building these good financial habits. We all work hard to earn money and sometimes let ourselves overspend as a reward. While such spending trips will make us happy and content in the short term, they can have a negative impact on our financial future. So this Dussehra, we share with you ways to triumph over your bad spending habits with 5 science-backed techniques.
1.Don’t Follow The Crowd
The first step to avoid taking decisions based on Herd Mentality is to be aware of the human tendency to do so. Humans find safety in following the crowd. If a lot of people are doing something – we tend to trust it, instead of finding out rationally if it benefits us or is even required for our wellbeing – financial or otherwise. People might sometimes invest in a “hot” deal because everyone is doing so and end up losing money because everyone started selling it off in a panic. A simple trick to gauge if you’re falling prey to Herd Mentality is to pause before making any financial decision impulsively and reflect if it truly benefits you and your financial future. Short-term bets sound exciting but might not necessarily lead to good financial outcomes.
2.Take Calculated Risks
We’re all for being cautious with spends and the financial decisions we make. However, one needs to remain positive about their financial future and take steps to secure it. Avoiding immediate outflow of money for a long term financial investment can be counterproductive. This bias towards inaction can be harmful for long term security. For example, some may avoid or postpone buying a life insurance plan to avoid paying premiums, however, one must not forget that delay in this decision costs as the life insurance premium increases with growing age. One way to outsmart our inherent biases is to take financial decisions that are guided by experts. Financial experts make suggestions based on facts, proven tools and past performance and don’t rely on Herd Mentality or emotions. Get in touch with our financial advisor who will guide to take financial decisions that are based on research and befitting your long-term financial goals and needs.
3.Break Down Big Financial Milestones into Smaller Steps
Big financial decisions like buying a house can make us feel overwhelmed. What overwhelms us mostly is Decision Paralysis. When we are about to make a decision as big as buying a house, there will be multiple people advising us. On being bombarded with too many opinions, the human mind tends to get confused and thus is not be able to take any clear decision. In order to tackle this, it is important to break down the big financial step into smaller steps. In the case of buying a house, it is important to start with the basics like– figuring out how much you want to spend, followed by a decision on the location, checking loan eligibility and so on. The key is to focus on one small decision at a time which will eventually lead to the bigger goal accomplishment.
4.Keep Your Confirmation Bias In Check
We cannot avoid the influence that emotions have on our financial decision making. While making a decision, at times the human mind has the tendency to get biased about the information that sound pleasing to it and avoid the negative facts altogether. This tendency is called Confirmation Bias. The best way to tackle Confirmation Bias is to accept that we may be capable of making a wrong financial decision and seek the help of experts who can help us take an unbiased opinion.
5.Be Vary of Mental Accounting
Mental accounting is the act of categorising money based on its source. For example, we tend to attach less value to the money we receive as a gift because it is something we did not work hard for. Since, we have lesser value for it in our head, the possibility of us spending it rather than saving it increases. This happens to us when we spend using our credit cards too. Spending using a credit card doesn’t feel like we’re spending out of our pocket, because the bill is sent to us at the end of the month. A good way to tackle Mental Accounting is to become financially organised by keeping track of income and expenses. Don’t rely on your memory to remember expenses, but list them down and chart them against your income. Keep a log of your income and expenses to build your wealth in the long run.
Dussehra celebrates the triumph of good over evil. So burn your bad spending habits this Dussehra to pave the way towards a better financial future for yourself and your loved ones.