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?
- 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.
- 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.
- 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?
Image by cobrasoft from sxc.hu
Read MoreFrugality Tip: Stop Watching TV
Seriously.
Here’s the thing, I used to watch TV idly as a way to relax. I’d turn it on and watch whatever was mildly interesting. Since I had a cable TV subscription, something was always on.
Then, I noticed something about myself. I would watch a show I didn’t even like. Even reruns. I called this “mindless entertainment”. After all, I was only unwinding. But the way TV sucks you in to watch one show after another, I found that I watched at least 3 hours each night. This amounted to at least 15 hours of TV per weekday. Even more hours were spent watching TV during weekends.
I realized that I had a problem when I was watching an episode of The OC for the third time. And I actually hated the show!
If I wanted to be more productive and have more free time, clearly I had to cut back on TV and find other ways to relax.
Now, I still have a TV but I rarely use it. When I was cutting back on expenses, I canceled my cable TV subscription. I have cable TV again because of someone who lives with me, but when she leaves I’m going to have it disconnected again.
Because I don’t really watch TV. And you know what, I think I owe at least some part of my financial stability to that. Here’s why:
- If you watch less TV you won’t be as prone to tempting ads. Don’t get me wrong, everyone is prone to being convinced by advertising, but at least by cutting back on TV you have less exposure. Also, ads take up around 1/4 of a show’s air time, and life’s too short to be spent watching random ads.
- You can do something more productive or restful for your downtime. This includes bonding with friends and family, reading, working on a side business, managing your money, or even sleeping.
- Foreign shows, news, and other forms of entertainment can be found for free online. You just need to know where to look. No need to pay a premium for subscriptions, and no need to wait a certain time/day for your favorite show. In other words, you get to choose carefully which shows you’ll invest your time in.
One disadvantage is that my friends give me crap about how I don’t know Kim Chiu, or who the latest matinee idol is, or how I’m a “loser” for not watching Pinoy Big Brother. But come on – as far as disadvantages go, who cares? I’m never the one who complains about not having enough time for sleep/hobbies/family.
Try it. Disconnect your cable TV subscription, if you have it. Turn off the TV set. You’ll be surprised at what you could accomplish. Why not add that to your list of goals for the new year?
Read More2009 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.
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
Read MoreDay#19: Quit an expensive habit.
This is Day #19 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:
Today’s Task: Quit an expensive habit.
We all have habits. Some of them are healthy while others can be destructive if we do them mindlessly. The truth is that some habits have negative consequences on our finances. While we can live with most of these consequences, there are some cases where we can’t afford them. Here are some examples:
- That (almost) daily morning coffee.
- Smoking.
- Going shopping as therapy.
- Sending forwarded text messages to your entire contact list multiple times a day.
- Dining out with family or friends during payday.
- Buying lunch from fast food chains rather than bringing your own lunch.
But how do you quit a habit? The first thing you should try is to figure out how much it’s costing you. How much do you spend on that habit per week? Per month? Per year?
After doing the math, find out if your income allows for this kind of expense. For example, when I was still a student, I noticed that I bought bottled water and other drinks each day during lunch. This cost me P30 per day, and since I was usually at school 6 times a week, this seemingly minor daily expense cost me at least P700/month. At that time I was probably earning only P9,000/month since I was just starting out as a freelance writer. I was also the breadwinner, which meant that the P700/month was more than I could afford for something as simple as water. Realizing this, I just brought my own bottle to school every day and refilled it at the water fountain.
If your expensive habit is something you can’t give up completely, then consider simply cutting back. Instead of the daily cup of coffee, why not reduce it to three times a week? Even this simple change can give you a lot of “extra” money which you can funnel into your savings, emergency fund, or an item that matters more to you.
What expensive habits do you have? Can you afford to have them?
Image by vivekchugh from sxc.hu
Read MoreDay#17: Know the things you don't care to spend on.
This is Day #17 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:
When it comes to time and money, we usually focus on the things we have to do. Paying the bills, finishing up that report, cleaning the house. While these things are important, we should be equally mindful of the things we shouldn’t do.
Today’s Task: Know the things that you don’t care to spend on.
It’s simple. Just jot down the expenses that really don’t matter to you. Here’s a short list of some things that don’t matter to me:
- Dining out
- Watching most films in the cinema
- Clothes and accessories (as a side effect of rarely going out)
- Cable TV
Things that matter to me:
- Books
- Good quality of food
- Maintaining a solid but beautiful house
- Hobbies such as woodworking and gardening
What does this mean? By making the list of the things that don’t matter to you, you’ll know what expense traps to avoid. For example, why would I spend P500 to try out a new restaurant when I can use that money to buy high-quality ingredients for a home cooked meal? Or, why would I spend P200 to watch a movie in a mall dahil wala lang akong magawa, when I can usually buy 5 books with that at my favorite used books store? It’s like building a list of “not-priorities”.
You can also do this exercise for a major purchase so that you won’t be distracted. When buying a new car, this may be your list of not-priorities:
- Color
- Exterior design
- Quality of speakers
By making this list before you look at cars to buy, you won’t be distracted by the bells and whistles that don’t matter to you. You won’t go “Shit, panget pala gas mileage nito, nadistract ako sa sleek, chromed-up design.” Conversely, if the exterior design matters to you the most, you won’t be distracted by sales pitches about payment terms or storage space.
When we have limited resources, we need to know the things we can “sacrifice”, and the things we don’t care about should be the first to go. That way, we know that we’re left with the things that matter.
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