Three ways to use psychology to help you better manage your finances
When it comes to financial management, it’s easy to end up assuming that the only things that really need to be taken into consideration are strictly pragmatic concerns and exercises. Things like using the right budgeting tool, and keeping an eye on your portfolio.
In reality, however, effectively managing your finances is likely to be as much of a psychological exercise as anything else.
So, whether you are already well-versed in the subject and are looking for current openings for psychiatry jobs, or whether you are a layman who just wants to be as financially savvy as possible, here are a few ways to use psychology to help you better manage your finances.
Structure your environment to nudge you in the right direction
The book “Nudge,” by Richard Thaler and Cass Sunstein, investigates some of the many ways in which people’s decisions – consumer decisions in particular – are influenced by strategic acts of environmental manipulation, and other marketing techniques, without their awareness.
Perhaps the core takeaway message from the book is that environment can direct people’s behaviours to a very significant degree. Often, this happens to an extent far greater than what those same individuals would ever accept as being possible.
In order to utilise this basic principle to help you with your financial management, figure out ways to structure your environment to “nudge” you in the right direction.
That might mean, for example, putting your credit cards in a drawer somewhere, so that it’s more difficult for you to pull them out on a whim to do some online shopping
Be aware that with many tools and systems, “the medium is the message”
There are many tools, services, and systems out there today where “the medium is the message,” in the same way as when Marshall McLuhan first coined the term to refer to television.
What this means, essentially, is that these tools and systems will promote certain behaviours, rather than being simply neutral tools that you can leverage in your own life in whichever way you choose.
You should, therefore, seek out the tools and systems that naturally drive desirable behaviour, and which don’t take advantage of your own innate psychological mechanisms to put you into a spiral of dopamine-driven addiction – which, as described by Adam Alter in his book “Irresistible,” is the case with many modern digital and Internet-based products and platforms
Overcome psychological resistance by focusing first and foremost on small, incremental actions
Internal resistance to activities which are perceived to be difficult or strenuous, is one of the most readily apparent psychological mechanisms we all possess.
When it comes to your financial management habits, therefore, it can really pay (no pun intended) to focus first and foremost on small, incremental actions, which lead you in the right direction but which don’t appear overwhelming on a surface level.
In this way, you can lay the foundations of positive habits, which will then become more automatic and easier to maintain and “ramp up” without encountering undue resistance.