Behavior, Not Knowledge, is Essential to Financial Success

Which would you rather get – P3,000 in three days, or P5,000 in three months?

Think about it for a while.

If you answered the P3,000, this usually means you are financially impulsive, since you’d be turning down an interest rate that is much better than what banks and most investments offer.

In a study conducted by researchers from the University College of London, nearly half of their respondents preferred the lower (but sooner) sum – and that these people also showed impulsiveness in other areas of their life. From the article (emphasis mine):

“…researchers suggest money savings or financial behaviors are linked to a set of other personal behaviors, rather than personal knowledge and experience with money.

…[they] discovered impulsive behaviors such as overeating, smoking and infidelity are associated with financial gullibility.”

This means that even if you know a lot about money, investing, and business, it doesn’t guarantee that you’ll be financially secure. What guarantees your financial success is your behavior. If you are consciously planning for the future and spend time evaluating your impulsive desires, then you have better chances of being financially successful – even better chances than someone who had formal training in finances, but doesn’t exhibit those behaviors. Perhaps this is why even the smartest people we know make stupid decisions regarding their money.

How do we use this information to our advantage?

1. Acknowledge that you don’t have to know everything to start fixing your finances. One of the obstacles that most people face when it comes to fixing their finances is inaction. They think “Oh I have to read more about saving before I can actually save” or “I need to know more tips before I can start”. Being good with money is not always about facts – it’s also about behavior. While we need to study some things – especially when investing – we don’t need to know much to get started.
2. Realize that managing money well is a habit. It’s something you have to cultivate and practice regularly. There is no one-off solution, magical budgeting program, or miracle investment that will save you. It takes regular, continuous work.
3. Know that changing impulsive financial behavior may mean changing other aspects of your life as well. My mother was such an impulsive spender, but her impulsive behavior wasn’t limited to money. She was that way about almost everything. From her business endeavors to her anger. For those who are truly impulsive, it may be a more difficult journey to get your finances together – but it doesn’t mean you shouldn’t try.

If impulsive spending and investing was one of your problems, take a look at your past behavior and see how you’ve changed since then. How have these changes affected your finances? How do you feel about the research I quoted above?

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2009 in Review: The Best of Frugal Pinoy

First of all, I’d like to greet all Frugal Pinoy readers out there:

Happy New Year! Thank you for supporting and reading Frugal Pinoy. I hope that you continue to find this site useful in 2010. Most of all, may you have a healthy, happy, and productive year ahead of you!

Now before we leap into 2010, let’s take this opportunity to review Frugal Pinoy’s top 10 most informative articles for the year.

Does Frugal Pinoy apply to you?

At the start of 2009, I wanted readers to ask themselves if the articles I  post here are relevant to them. This was my response to some comments from both friends and strangers that the site was not applicable to them.

A Different Way of Looking at Income

Do you judge or measure your income per month? If so, you may not be earning as much as you think. This article explores the reasons why we should measure our income by the hour instead.

Money Myths: Frugality Means Sacrificing Fun

In this article, I attempt to debunk the myth that a frugal life is a hard and boring life.

6 Signs That You’re Living Beyond Your Means

Don’t know how much you’re spending each month? Feeling guilty about using that credit card? Watch out. You might be spending more than you earn.

My Investment Strategy

In this short post I talk about my decision-making process behind my investments. Hint: it has nothing to do with the hot stock tips.

Getting Out of Debt vs. Saving: Which Should You Prioritize?

When you’re trying to make ends meet as well as paying off debt, you might feel like you’re being spread too thinly. How do you choose between saving for emergencies and being debt-free?

When Listening to Experts Use Your Brain

Researchers found that when people are presented with an expert, they drop all attempts at decision-making – even if the expert is fake. Is it possible to make independent financial decisions despite all the “expert” advice we receive?

Money Myths: Can Money Buy Happiness?

Scientists learned that having enough money for necessities can buy a feeling of peace and security – but anything else beyond that is up to you.

The Hard Truth: 30 Money Questions You Should Ask Yourself

A no-BS list of questions to help you face the truth of your financial situation.

Free Download: Frugal Pinoy Budgeting Spreadsheet

I made a free downloadable budgeting spreadsheet for Frugal Pinoy readers. There’s a video tutorial to help guide you through it.

Also, let’s not forget that nearing the end of 2009, I launched the 25  Days to Healthier Finances series. In that series, I posted one article per day with an actionable task that readers (and I) can do to make our financial lives better.

That’s it from me for today. Again, I’d like to thank all the Frugal Pinoy readers (even the newcomers) for supporting and reading the blog this year.

All the best,

Celine

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Day#21: Prepare for the holidays – for next year.

This is Day #21 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:

By now you’re probably feeling the stress of spending for the holidays – if you’re most people, that is. I’m sorry to say that I’m one of those people. Here I was, saving up for my emergency fund and retirement and before I knew it, it’s Christmas already. As for me, my main issue is that I often feel guilty about forgetting to send greeting cards to friends and relatives abroad. By planning early, I hope to avoid that, among other things.

Today’s Task: Prepare for the holidays – for next year.

That’s right, next year. So that we’re not caught by surprise, as well as be sure that we can afford the celebrations we want to have. While the holidays need not be expensive, they are an added expense that you often don’t see reflected in your monthly budget. But if we plan early, we can have worry-free holidays next year without worrying financially.

First, we need to budget our expenses for gifts, food, donations, and other items relevant to the holidays. This includes your noche buena, media noche, any possible potluck contributions. Cash gifts for the mailman, garbage collectors, and other community workers should also be included (so that you always have something to put in those yearly white envelopes they send out). I usually don’t decorate my house, but if it’s something your family loves to do then factor that in as well. Itemize your list, especially if there are specific gifts you want to give, or if there’s a particular dish you want to make.

Then, figure out a payment plan for that. How much money each month can you set aside for your “holiday fund”? How feasible is it? If you find that you can’t afford all of it, look for ways you can trim down the expenses. As you go through 2010, you’ll probably find new deals and ideas that can help lower your holiday expenses if your “ideal budget” doesn’t match what you can afford.

After the holidays, it might also help to compare your prepared 2010 holiday budget with what you actually spent this year. This will allow you to make realistic adjustments, especially if you underestimated your spending.

Finally, think of other special occasions you like celebrating. Your list might include birthdays, Valentine’s day, anniversaries. Plan for them as well.

How well did you prepare for this year’s holidays? Are you going to prepare for it next year?

Image by a_glitch from sxc.hu

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