The way we learn about money when we are younger usually falls along the lines of “If you have $5 and you give Tommy $1, how much money do you have now?” While this is a great way to teach children about arithmetic, it is not necessarily the most encompassing way to teach anyone about budgeting and financial planning. One of the aspects not touched upon in this example is mental health, and as with any goal we set in life, our mental health plays a large part in whether we make or break it. Below I touch on eight ways mental health issues can derail your financial goals.
- Impulse purchases
We all know the feeling – you go to the store to pick up “that one thing,” but while you’re on the line, your eyes veer towards the “last chance!” rack and you think to yourself “why not? It’s only a few dollars.” What many people don’t realize is that those few dollars add up. Before you know it, you’ve spent your whole discretionary income in the first three days after payday. Many retail experts will put that rack at the front of the store just to target the impulse purchaser – they know that you are bored waiting in line and looking for somewhere to fix your attention. One way to plan for this is to only go shopping with your shopping list in hand and ignore anything that does not fall on that list. Another is to require yourself to hold off on any purchases until you have had sufficient time to think about it and only purchase it once you are sure it fits into your budget.
- Poor time management
Poor time management can lead to a lack of planning, which will likely lead to many last-minute purchases – for instance, getting takeout because you did not give yourself a chance to go grocery shopping or needing to replace forgotten items during rushed packing for a trip. Everyone has days where it seems the clock is just against you and there are psychological conditions that can lead to poor time management (including ADHD and depression). However, failing to nail down an effective system for time management can significantly derail your financial plan. It is good to spend time while you are budgeting to figure out where you have lapsed and found steps you can take to mitigate it in the future.
- Emotional spending (a.k.a. keeping up with the Joneses)
Occasionally wanting to splurge on that handbag or car others would envy is just part of the human experience and can be a sign of a healthy ego. However, if you find yourself swiping your credit card frequently only to impress others and one-up friends, it could be a sign of something bigger at play. Experts theorize that this is due to jealousy and insecurity, and those who engage in this behavior are often left disappointed. Advice for this is similar to that for impulse purchasing – hold off on any purchases until you have planned for them in your budget. Additionally, figuring out the motivation for the purchase in order to ensure it is in line with YOUR financial goals and not others would immensely help in mitigating emotional spending.
- Burnout or lack of energy
Picture this – you’re at the end of a busy project at work and you have a bill due at midnight that night, but instead of looking at your computer to pay your bill, you choose to put on your comfiest pajama set and crawl into bed, not to be found for the next 10-12 hours. Your bill becomes overdue and you say “oh well, I’ll deal with it tomorrow!” Or you’ve spent every day for the last week shuffling your children back and forth to school and activities and were too tired to check the bills. This happens far more than people realize, and this is one-way banks and creditors make so much money in late fees. If you find this happening to you more times than you can count, the best thing you can do is create a system where the monthly bill pay does not take any added mental effort. Whether it is automated or you get an alert on your phone or you have a set day every week that you check what is coming due, having a system allows you the flexibility to change as needed and the peace of mind that it is done.
- Indecisiveness with goals and priorities
The #1 best thing you can do for your financial health is to figure out what your goals are. This will help drive what you are willing and unwilling to pay for. It also helps to prioritize what is important for your spending needs in the short or long term. If your current goal is debt payoff but your credit card bill keeps increasing due to unnecessary spending, or you would like to invest in entrepreneurial pursuits but your purchases are all going towards purchasing luxury items, getting a clearer picture and aligning your spending with your goals will help tremendously in getting you to where you want to go.
- Not believing in your self-worth
One of the biggest mistakes that early-career professionals and new business owners make is not asking for salary increases or undercharging for services you are providing. Many times this is due to wanting to avoid conflict and make sure to be paid for the services. It can be equally due to a lack of self-worth and not believing in the value your work brings to a company or customer. Many luxury brands can charge exorbitant prices for their merchandise and they get sold, like a Tiffany & Co key ring for $200-300, because they understand the value that their brand brings. In a similar vein, when pricing your products or services, undercharging could be costing you business due to potential customers not seeing your business as that of high value.
- Fearing or delaying talking about finances in your relationship
When picking a potential life partner an important conversation is each of your household incomes and what your financial goals are going to be together. It is public knowledge that 40 to 50% of married couples in the US divorce with the top issues including lack of communication, financial issues, and different priorities. Having this conversation early can help to get you both on the same page about what you are aiming for or help to understand why each of your goals may not be compatible in the long run.
8. Procrastination in planning for the future
The common sentiment “if you fail to plan, you plan to fail” absolutely applies to personal finance. Understanding your future financial goals and planning toward them on a regular basis will allow you to realize your goals. Some common reasons for procrastination may include a fear of failure or perfectionism, but understanding your current net worth and coming up with a plan for what you’d need in order to live comfortably in the future will allow you to take the steps you need to take to get there. There are plenty of retirement calculators online to help you figure out what you would need for the future and working with a coach or financial advisor may be just what you need to keep you accountable as you work through it.
9. Not understanding your risk tolerance
Everyone has a different risk tolerance that dictates the way decisions are made in their daily life – the job you choose to accept, the purchases you make, the investments you hold, the cash you keep on hand, etc. Most people have a general sense of how risky they can accept their financial situation to be – some are okay with the possibility of making minimum wage for the rest of their lives, while others are looking for stable 9 to 5 jobs with health benefits. Problems can arise when your risk tolerance does not align with the financial choices you are making – for instance, a new parent may be better suited towards a stable job with health benefits to care for the new child. If one parent already has benefits that cover the family, the other parent may be free to choose a less stable career without risking taking on medical debt in the event of a health event. Understanding your risk tolerance will help you make financial decisions that align with the life you would like to live while offering you the level of riskiness or stability you are most comfortable living with.