Millions of people today are struggling with money problems. To a greater or lesser degree these problems may be a result of social, economic, and political factors that are beyond the control of the average person. Even so, there is much that individuals can do to improve their personal finances. It all centers on learning to make smart financial decisions and to stick by them. Virtually anyone can improve his or her decision-making skills.
Become a more mindful shopper
It may seem like stating the obvious to say that you should always comparison-shop, and many people do for most items, particularly since the Internet has made comparison-shopping so easy and convenient. Still, many people either buy compulsively or click on the first item they see listed, particularly if it’s something they really want or urgently need.
This seems to be particularly true with financial products such as personal loans, especially in the case of people with poor credit who many not be able get a conventional bank loan. But it’s just as important to comparison-shop for a personal loan as it is for a hotel room or a computer – perhaps even more so, because the decision you make can have long-term effects and can definitely affect your credit rating.
Even with all the online tools available, many people respond to what marketing people refer to as a “dog whistle” in advertisements. Just as humans can’t hear a dog whistle, but dogs hear it and respond, people who look solely at ads are given subtle messages that are easy to consciously overlook, but that stoke the person’s interest on an almost subliminal level. Many automobile shoppers, for example, look only at the large-print specifications such as price, the size of the engine, and mileage ratings (which are almost always higher than the vehicle will achieve). They often neglect to look more closely at things like truly objective reviews and reliability ratings by consumer groups or reviews of previous owners.
The same principle applies to shopping for credit. When you look for a personal loan such as an instalment loan, you need to be aware of more than just the interest rate. While that might be one of the most important factors in how favorable a loan will be, the “small print” details can make a big difference in how much you will pay and, ultimately, how much impact the loan will have on your credit score. Compare all the elements of the loan agreement, and compare the total cost from several lenders, which won’t always be obvious in their advertisements or even on their websites. Shopping carefully can help you avoid unpleasant surprises somewhere down the road.
Get in the habit of thinking before you spend
Borrowing is far from the only personal-finance area in which mindful decision-making is essential. To get a handle on your finances you should get into the habit of thinking before you spend money – whether it’s on a new pair of shoes, a night on the town, an upgraded smart phone, or anything else. Here are a few ideas to get you started doing some clear thinking before you make up your mind.
Look at both the benefits and the drawbacks. Most people would benefit from making a list of ways their purchase or decision could benefit them, and another of ways the decision would or could be detrimental. It’s best to take some time and make the lists as complete as possible, then compare the lists and see how they affect their decision. Remember: few people actually wish they hadn’t thought a decision through before acting.
Determine exactly why you are making this purchase. Is it a want or a need? Are you doing it just to “keep up with the Joneses” – because your friends and neighbors made a similar purchase?
Figure out if the purchase will really serve you. If you make the purchase or take the action you’re considering, will your life be enhanced by the result, or will you simply be left with a greater burden? There’s an old saying among boat owners: The two happiest days for a boat owner are the day he buys the boat and the day he sells it. This can apply equally well to many other major purchases or big decisions.
Don’t let emotions rule your money decisions
This is perhaps the most important principle, and probably the hardest one to put into practice. There’s an old saying among marketing experts that people buy on emotion and justify with logic. And advertisers of course take advantage of this fact. We’re all human, and people who consider themselves to be completely rational all the time are only fooling themselves. But you can learn to keep your emotions under control where financial matters are concerned. Merely acknowledging that you make so many purchasing decisions based on emotion can give you considerable power in choosing not to be guided blindly by them.
And perhaps a little old-fashioned Stoicism is in order as well. Some of the principles of Stoicism, which places an emphasis on knowledge and reason, can be applied to many areas of your life – including (and perhaps especially) your finances. Specifically, you can reap both short and long term benefits if you sit down and seriously reflect on your money use. Take a good honest look at how you use your money and whether or not the ways you do so actually make sense.
Using a spending tracker of some type is an excellent way to begin your analysis, and there are various online tools and smartphone apps to aid you. Tracking your spending can help you determine whether your use of money enhances or burdens your life – but only if you are willing to be brutally honest with yourself.
With a little practice and discipline, you can learn to use money to actually improve your quality of life, rather than simply masking the conditions that need improvement. Making better financial decisions, based on good, objective information, can help put you on the road to a less stressful and more fulfilling life.