How to Conquer and Overcome Your Money Struggles

When I think about all the clients that I have worked with over the years, the ones that successfully retired all followed these all too familiar pieces of financial advice:

  1. Spend less than you earn
  2. Save and/or invest money for your future.

But if it’s that simple, why on earth are there countless books, blogs (like mine), forums, experts, conferences, classes, podcasts, and television shows on the subject of finance?

Shouldn’t we all have been able to master those two simple financial points by now?

money struggles

Well, to quote Morpheus, one of my favorite movie wise men,

“There’s a difference between knowing the path, and walking the path.”

In Neo’s case, that difference meant finally believing he was capable of stopping bullets in mid-air, which is pretty kick-ass.

But in the case of the average person struggling with money, that difference means finally understanding what kinds of psychological barriers are keeping you from doing the things you already know you should do.

As it turns out, our brains can often get in the way of making good decisions. We may have every intention of living within our means and putting money away for the future, but various psychological barriers can keep us from walking that path. And so we find ourselves looking for new answers month after month and year after year, all the while continuing to struggle with debt, hand-to-mouth living, and an empty retirement account.

It’s time to believe that you are capable of walking the path.

These two psychological barriers may have kept you from your financial potential in the past, but kicking them to the curb will allow you to fulfill your destiny. (Ability to slow down time and dodge bullets not guaranteed).

1. Only Focusing On Urgent Problems.

Stephen Covey, the famed author of The Seven Habits of Highly Effective People, posits that there are four types of tasks:

  1. Those that are urgent and important
  2. Those that are urgent but not important,
  3. Those that are important but not urgent, and
  4. Those that are neither urgent nor important.

Everyone tends to be really good at taking care of both types of urgent tasks (and they’re not too shabby at the tasks that are neither urgent nor important, particularly when it involves surfing the internet or re-watching favorite movies for the umpteenth time). Where we fall down on the job is the important but not urgent tasks.

Here’s what I mean: signing up for your company’s 401k program is very important. For most people, it’s their primary retirement savings plan, and many companies will offer to match a portion of your contribution.

But walking down to your HR department and filling out the form could be done at any time, so that particular chore tends to get put off. After all, HR is all the way on the other side of the building, and there are probably decisions you’ll have to make about your contributions that you don’t feel like doing. You’ll worry about it later.

Personal example: Amazingly, a friend of mine who had really good paying job with a 401k dollar for dollar match for the first 7% of his income used this same excuse for almost 5 years.  I was on the verge of threatening bodily harm if he didn’t sign up. He finally caved in and now thanks me for giving him the much needed shove.

On the other hand, paying your rent and your bills is both urgent and important. You must do this at the proper time, or you will face serious consequences. No one forgets to handle urgent matters, even though important matters that aren’t urgent can really fall by the wayside.

This psychological barrier gets to be particularly problematic when you are living with a scarcity mindset. You might be thinking that you have to get enough money together for groceries this week. This is an urgent problem because your family needs to eat. So, you pull together all the money you can find to go food shopping.

But the money you use for this week’s urgent task might have been set aside for next week’s rent money, meaning you have another urgent and important task to take of then. You spend time taking care of that problem, only to have another and another crop up. You’ll never get to the important but not urgent tasks of saving money or investing or even budgeting when you are constantly putting out fires.

How to Fight This Psychological Barrier:

1. Pay Yourself First.

This is a very tough thing to do, particularly if you live from crisis to crisis, but the only way to stop the urgent task merry-go-round is to treat yourself as most important. If, for example, you live paycheck-to-paycheck, put a small amount aside each payday that you do not touch. Pretend that small amount that you save is an important and urgent bill you have to pay. Then you will not be tempted to dip into that savings. After several months, you’ll have built up an emergency fund, which will be your first step in taking control of your finances.

Another option for fighting this barrier is to create deadlines for yourself for completing important financial tasks—and coming up with negative consequences for missing those deadlines. For example, you might say that you will not allow yourself to watch TV until you’ve spoken to your HR department about your 401k, and have a friend or spouse keep you to it.

The important things in your life should be taken care of as diligently those daily emergencies. The important thing is to think of yourself as worth paying first.

2. Looking For Evidence That Your Situation Isn’t So Bad.

Journalist and satirist H.L. Mencken once described wealth as “making $100 more per year than your wife’s sister’s husband.” And even though he was making a joke at the time, Mencken really had his finger on the pulse of what makes us tick in terms of finances. Even when we know we can do better, we look around for things that will prove that our situation is just fine.

This particular psychological barrier is called the confirmation bias, and it’s a way for our brains to prove our own beliefs are true.

Here’s how it works: let’s say you believe that debt is just a part of life, and the only people who aren’t in debt are the wealthy suit-wearing types who are really horrible people. You confirmation bias will look for evidence that everyone is in debt—which can be pretty easy. If your family, your friends and your co-workers are all in debt, it confirms your belief.

But the other half of your belief—that the only people not in debt are fat cats who only care about the bottom line—can also be easily confirmed. Every news story you see about a greedy banker or Bernie Madoff type just proves that you’re right.

Of course, you might meet a “normal” person who isn’t in debt, or you might hear about a rich philanthropist, but you’ll just ignore those pieces of evidence. They don’t fit your beliefs, so you neither seek that evidence out nor do you pay attention to it when you do see it.

Where this gets particularly harmful to your finances is when you allow your beliefs and the “evidence” you gather to limit your potential.

For example, if you think everyone who is in debt is a good, salt-of-the-earth type of person, and everyone wealthy is horrible, you won’t work to build your own wealth, for fear of becoming awful.

Note: I filmed a video on this where I warned about getting stuck in your own financial mindset. You can see the video below.



How to Fight This Psychological Barrier

Examine your beliefs. Again, this course of action is much easier said than done, considering the fact that no one really likes to put their beliefs under the microscope. But it pays to take the time to figure out exactly what it is you believe about money and where those beliefs came from.

One way to do this is to specifically seek out information that contradicts your beliefs. It can be pretty tough to do this, because it can actually hurt to read evidence that runs counter to your beliefs. In fact, psychologists have seen individuals who are presented with information that is contradictory to their beliefs reject that information and become even stronger in their beliefs. This psychological barrier can be a very tenacious one, indeed.

However, if you know that you want to improve your financial life, you need to be willing to rethink your basic beliefs about money and seek out balanced evidence about what constitutes reasonable financial behavior. Reading contradictory information will give you the opportunity to check on your beliefs and be convinced by rational arguments on any side of the issue.

Fight Your Money Struggles Head On

Human beings can find any number of ways to prevent themselves from achieving their full potential. And because we are so used to simply handling preventable problems as they crop up and comparing ourselves to other people, we don’t even realize that doing these things is actually putting up a huge roadblock in our way.

Doing the work it takes to overcome these psychological barriers is not easy, nor is it a quick process. But wouldn’t you rather be someone who walks the path, rather than just knowing it’s there?

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Comments | 5 Responses

  1. says

    One thing I can say about 401k plans is that they’re not exactly simple. I think our company has a relatively easy one. They have an opt out system, match 6%, and only have a small list of funds to pick from.

    But I’ve been at other places with no match and a list of funds that spanned several pages. And included auto-upselling of some kind of management service. For the first 3 months, I had no idea what was happening in my 401k, except that it was doing everything other than what I told it to do.

    And have you ever sat through an HR presentation? They are almost universally long winded and awful.

  2. says

    I heard two more things from my neighbor, who is one of those prototypical “millionaires next door.” He says: don’t move. Each move takes $50-100K out of your net worth at retirement. Second thing: work at staying together. Nothing rips apart a nest egg like a divorce.

    Worked for him :)

  3. says

    I have found another value that is helpful in focusing on what is most important, and that is the value of sufficiency. The fact is, there is no amount of money that can make us feel safe enough where we look at the big picture, and if we walk around each day thinking we’re in immediate danger, we will put off more structural choices like diet changes or setting up a 401K or creating a budget.

    Concurrently, if somebody realizes, not just “thinks” but knows that their current situation is fine, that they are not going to die from starvation or something this month, then they have the freedom to look at the big picture and make those changes.

  4. says

    In some ways it’s almost more amazing that anyone can break through the barrage of messaging that counters a financial independence strategy. Between commercials, easy credit, keeping up with the Joneses, lame advice about how little people really need to invest, etc., it’s a wonder anyone can figure it out. Thank goodness the internet is available now to provide new ways of thinking.

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