- Emotions play a significant role in our money decisions.
- Some money strategies involve going against rationality.
- Focus on financial victories, giving and fun.
Coffee drinkers can usually make coffee more cheaply at home or get a cup for free at work. However, many still choose to buy higher-priced coffee from Starbucks or local shops. While this can occur for many reasons, emotions tend to play a role in purchasing coffee or other indulgences. Emotions could drive as much as 80% of the decisions that humans make, according to Psychology Today.
However, most personal finance resources tend to center on topics such as making a budget, finding ways to save or discovering new and better ways to earn money. While such advice can benefit you, it offers little help when you want to relieve stress after a bad day or if you feel too defeated to look for better-paying work.
3 Strategies for Managing Your Money
As a human being, you cannot eliminate emotions from the management of personal finances. However, by employing these three strategies, you can better manage some of the emotions that come with personal money management.
1. Focus on Giving
According to the Urban Institute, about 4 in 10 nonelderly, nondisabled adults struggled to meet basic needs in 2017. Charitable giving seems like the last thing that would make sense for a person in such conditions. However, even the less advantaged among us need to consider some of the more selfish benefits of giving.
People who give tend to experience increased self-esteem, less stress and lower levels of depression. A Chicago Tribune article once even referred to charity as a possible “magic pill” that brings happiness and a longer lifespan. The point is that everyone should give voluntarily and cheerfully.
Schools of thought differ on the topic of how much to give. Still, it should amount to something that engenders a feeling of generosity. Also, because taxation is not voluntary, you should not count your tax money that went to help the poor.
If you absolutely cannot give money, you can enjoy many of these same benefits by giving your time to a worthy cause instead. No matter how you choose to provide, giving will help you achieve a sense of well-being that is needed to better manage your finances and the emotions that come with it.
2. Pay Off Your Smallest Debts First
Some will argue that those who carry multiple types of debt should pay off the debt with the highest interest rate first. From a scientific standpoint, paying off higher-interest debts reduces the interest you must pay. However, such a strategy can also weigh on debtors psychologically.
Much of the debate on this topic revolves around the debt snowball and debt avalanche methods. Both techniques advocate paying the minimum on each debt and otherwise focusing on one debt at a time. However, the debt snowball method focuses on the smallest debt first. The debt avalanche favors the elimination of the debt with the largest interest rate first.
Academic studies on this topic have indicated that the debt snowball method increased the likelihood of sticking to a payoff plan. According to studies, the victories involved with closing debt accounts motivated people to stay with their plans. Hence, the debt snowball strategy will probably serve you better emotionally.
Should you find yourself in this situation, do not forget to also consider strategies such as budgeting and negotiating lower interest rates along the way. However, by focusing on these little wins, you can stay motivated and achieve the ultimate victory that comes with paying off the last debt.
Find Out: 30 Ways to Dig Yourself Out of Debt
3. Blow Some Money
This is probably the last piece of advice you expected on the subject of managing your money. However, when it comes to money, we’re human and we all need to feel a sense of power. One way we achieve this power is by spending money on fun. And let’s face it — from time to time, we’re going to do just that, regardless of guidelines or best practices. Hence, you might as well have a plan for fun money.
Blowing money does not mean buying a luxury car you cannot afford. Nor does it entail running up credit card debt to take a dream trip to Italy. Instead, it means spending money on a whim that you budgeted explicitly for that purpose. This can mean going to a concert, treating yourself to a nice meal or making an impulse purchase just because you feel like it. You can also apply this philosophy to celebrate the achievement of goals. For example, succeeding with the debt snowball method might mean you spend what would have been the next monthly payment as fun money after you pay off your last debt.
Some advocate budgeting money for these whims. Others believe in setting aside a certain percentage for fun that includes planned activities. Still, most agree you need to budget and spend fun money. Not only will this offer relief from the drudgery of everyday life, but it will also allow some joy without the guilt that comes from irresponsible spending.
Keep reading to see 16 expert tips on managing your money.
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