When it comes to money and managing finances there is a lot to think about. So much so that it can become quite overwhelming at times and turn into something much more stressful than it should be.
The problem with money for many people is how they think about it. Whether you’ve got a little or a lot there are all sorts of things that can cause pressure to pile on and make dealing with money a burden.
How can you make the most of your money and take the pressure off at the same time?
Experts say it’s as simple as a change in mindset. And before the eye rolling commences, there’s more to it than just flicking an internal switch and saying you don’t care anymore. Wouldn’t that be nice though?
The key is to change the way you think about money; instead of money being a goal, think of money as a tool.
Don’t be afraid of money
When you think of money as lump sum going in and out of your bank account it can be stressful. Do you have enough to pay the bills, go out for lunch, and make ends meet? When you focus on your money as a week by week figure, your spending and your savings targets can be skewed.
Changing your mindset to thinking of it as a tool forces you to think more about how your money is working for you and what you’re doing to make the most of it.
“This shift in thinking is definitely subtle, but it changes our feelings about saving and spending. We no longer need to think in terms of good and bad, positive or negative. We’re focused on the outcome of our actions,” says finance writer Carl Richards.
This shift, says Richards, is just a mindset shift but it’s one that’s focussed on action and when it comes to personal finance, that’s everything.
Establish your goals
Don’t think of money as the goal. The goal is knowing how to use that money to get the things you want. Do you want to have enough saved by the time your car rego rolls around? Do you want a plane ticket to go visit family? Is it having enough to buy a new outfit or redo the garden?
Whatever it is, set your goals and save for them.
When we live on a week by week or even month by month basis we often end up spending more than we need and missing out on the chance to save that extra bit of cash.
People are more inclined to spend more when they don’t have specific goals in mind to save for.
To be realistic though, this isn’t easy for everyone to do. Some people are forced to live week to week because funds are so tight. Even if you’re in this position though, data has shown that making even a small change can help.
A study by the University of Michigan tracked tracked toilet paper purchases of more than 100,000 American households for seven years. While the topic might sound trivial, it revealed some interesting answers as to why it is more difficult for some to save than others.
The study found that high income households bought toilet paper on sale 39 per cent of the time, compared to 2 per cent for low income households. High income households also bought more rolls on average compared to low income households.
Overall, low income households paid about 6 per centextra per sheet. Here’s what the study concluded:
“The inability to buy in bulk inhibits the ability to time purchases to take advantage of sales, and the inability to accelerate purchase timing to buy on sale inhibits the ability to buy in bulk. We find that the financial losses low income households incur due to underutilisation of these strategies can be as large as half of the savings they accrue by purchasing cheaper brands.”
Hardly seems fair right, but it can be changed.
Stay on target
Once you’ve set your goals, stick to them. Remind yourself of what your goals are every time you have money going into your account and every time you go out to spend it.
If you challenge yourself to meet your targets every month, you’re more motivated to think differently about how you spend.
Don’t feel guilty if you do miss your target every now and then though. This way of thinking is supposed to reduce your overall stress about money, not make it worse.
If you fall off the bandwagon one month, just make sure you jump back on it the next.