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The Biggest Threats To Your Financial Wellness: Ignorance and Impulse

As we continue our series exploring threats to your financial wellness, we need to discuss two of the biggest issues for American personal finance: Ignorance and Impulse.

Much of the American public is uneducated about personal finance and how best to navigate the space. There’s too little training in how to teach yourself and train against your base impulses to succeed, especially as young people go through high school courses focused on STEAM skills. We’re preparing our youth to be successful professionals but we are failing to groom them for financial wellness. This can be a painful topic, as our lack of teaching the next generation can often reflect our own blind spots.

Financial Ignorance

If you’re like most Americans, your financial education primarily consisted of two lessons: how to balance a checkbook and supply/demand economics. But checkbooks are outmoded and don’t fit today’s digital landscape and supply and demand can’t be the sole guiding principles for your financial life. This unawareness is taken advantage of by predatory institutions who use confusing language to obscure the uneven nature of their business relationships. From payday loans to confusing jargon surrounding different account types, most financial vehicles work in favor of the institution rather than the individual.

So how can a person improve themselves to push back against these practices? Through education. Whether through community college courses, Udemy.com courses, retaining a personal advisor, or spending some time reading on Investopedia.com, a wealth of resources are available online.

When determining what content deserves your attention and, potentially, money, ask yourself “who benefits?” Many thought leaders in the industry can push out books, workshops, and other media as a means to augment their sales funnel. Avoid paying for these sorts of things when possible – your local public library likely has a wide selection of useful texts. If not, you can always request they purchase what you want to read.

Impulsive Behaviors

How many Amazon purchases did you make in 2008? Compare that number to last year, and we’ll bet it increased by a factor of ten. Impulse buying fueled by credit cards, saved billing data, and intricate marketing mechanisms targeting your impulses make this sort of purchasing a pervasive and sneaky way for companies to increase their revenue while decreasing your net worth.

Credit cards.  Lunches out.

Small behaviors can become big, problematic habits. If the average lunch out costs $10, and you’re going out for lunch 5 days a week, that can add up to $2,500 annually! (Compiling your small purchases and habits into large chunks can be an eye-opening experience – do you really want to pay $4,800 over 10 years for a gym membership you never use?)

If your spending is out of hand the best thing you can do is track everything. Keep a spending journal or spreadsheet. Use an online service to track where your money is going. Whatever you have to do, identify the problematic habits that are costing future you thousands of dollars. Once you’ve found them, you can change the problematic behaviors.

Master Your Future

You are the master of your financial future. Market upswings and downswings are going to occur and you have to be ready. Before making a big decision or impulse purchase, pause for a moment and explain why you are doing what you are doing – if saying it out loud doesn’t make sense, reassess your choice. However, you are only human – you will fail to control your impulses and you will make poor judgement calls. The trick is in recognizing when you slip and correcting for it ahead of time.

Build some discretionary spending into your budget. Give yourself an allowance. Make yourself save for big purchases the way you had to as a child. It’s not enough to just arm yourself with good behaviors, though. They have to be backed up by a sound financial logic and strategy that will carry you through the good times as well as the bad. Whether this means online courses, extensive reading, or engaging with a financial advisor, you have to figure out what works best for you and then stick to it.Ready to master your financial future? Learn more about our private client services and how we can help you build your wealth.

The Biggest Threats To Your Financial Wellness: Debt and Undisciplined Behavior

If you’ve overcome the challenges to building wealth and have put a plan in place to systematize your finances, you’re off to a great start. In addition to continuing these behaviors over time, you must guard your burgeoning wealth against threats from within and without. Undisciplined behavior can keep your financial wellness plan from taking hold while accruing too many debts of the wrong sort can slow down your momentum for years to come.

High-Interest Debts

Credit card balances.

Cash advance.

High-interest debts are the sort you want to avoid. They can act like an anchor, weighing down your financial game plan and holding back your life from improving and advancing. Some ways to avoid building up these problematic balances are:

  • Don’t spend what you don’t have. Sticking to your existing budget can be difficult, but it’s better than crushing debts.
  • Pay off credit card balances at the end of every month. If you have to use a credit card, you should pay off the balance in full every month.
  • Start an emergency fund at a separate institution from your regular accounts. This will let you build your fund and keep it separate from your regular pool of finances.
  • Set up automatic savings deposits. Take advantage of the systematized processes available to build your finances without having to think about it.  
  • Run your home’s finances on the cash envelope system. This process involves planning and setting your budget based on cash banked in envelopes. Once the envelope is emptied, your budget is depleted for the month and you have to wait to re-up your cash.

In addition to these avoidance behaviors, you should never utilize payday loans. These predatory lending vehicles are structured in a way to accelerate your debt load and keep you paying forever. They contribute to a vicious cycle of poverty in the US that affects far too many people. Negotiate with your bills due, explore a refinancing loan, or take on a second job to handle difficult financial issues rather than this high-risk move that does nothing to benefit you.

Healthy Debts

Not all debts are created equal. While high-interest debts are a threat to your well-being, some debts present opportunities to improve your life down the line. Examples of good debts are:

  • A mortgage – the opportunity to build equity and potentially create a second income stream by renting your property is a huge investment in your future.
  • Credit consolidation loan – using this option to eliminate your high-interest debts can keep some people out of bankruptcy. They do come with restrictions that should be considered very carefully, but consolidation loans can represent a step towards greater financial awareness and freedom.
  • Personal business loan – taking a smart loan to help finance a personal business venture can lead to greater financial prosperity. We suggest you begin personal business ventures as an alternative venture to establish your business before exploring financing.

As opposed to unhealthy debt, good debt offers a benefit to you that is equal to the financial risk involved. These debt options have more stable loan rates and are less exploitative, serving as a launching pad for you to invest in your future. Unhealthy debt only solves a temporary problem which stems from poor financial discipline.  

Lack of Financial Discipline

Much misery can be tracked to undisciplined financial behaviors. Unhealthy debts arise when people act out of desperation or on impulse. Anyone can come up with a financial game plan to improve their life, but it takes real guts and determination to stick to it.

That sort of hard work pays off in the end, but it requires a dedicated patience that has fallen out of style in a society that puts a premium on instant gratification. The trick is to build a healthy financial mindset and cultivate a relationship with your finances in which you realize that your money is a tool for wellness, not a delivery system for your happiness.

Building Your Financial Game Plan

If you’ve successfully avoided those problematic debts, pat yourself on the back. If debt is an issue for you, you deserve recognition too – learning more about personal finance is the first step in finding your way out. Exploring what solution works best for your case, or whether to employ the debt snowball or debt avalanche method can be eye-opening.

Set and track a budget and stick to it, and you will see those problems begin to melt away. The trick to sticking to your new, financially healthy lifestyle? A mindset of abundance and gratitude. Know that the future holds promises of opportunity to make your life better, and keep rising up to be financially ready to take advantage of those opportunities.

Want to learn more about building wealth and staying out of problematic debts? Change your world by joining us at JBWealthfit and start working on the future you want to live.