Did you know that up to 8.3 million households in the UK are unable to pay off their debts or household bills? Scary stuff. In this blog post, I'm talking about psychological techniques that can help you to take control of your finances once and for all.
First off, I want to make clear the assumptions I'm making to write this post. I'm assuming that you have enough money coming in, but it can be tight at the end of the month. I'm assuming that you might need a little bit of help to manage your finances, but that you don't need specialist help. If you do, go to StepChange before reading this post.
Right, now that we're all on the same page, let's get started!
Finances are one of the things that continue to baffle me. On the one hand, we all pay bills and rent/mortgage, and we all spend money on other things that afford us some measure of happiness whilst doing so. But we don't talk about it! And if there's one thing I know from working in clinical psychology, it's that failure to talk about things can lead to some very unhealthy coping behaviours.
I was raised not to talk about money with other people. I nearly fainted once when my partner told his family how much I earned at the time (he was raised...differently to me!) and I grew up not having the language to talk about money with those around me. Growing up with this attitude can make you feel like everyone earns more than you do, and you have to "keep up with the Joneses" - not realising that the Joneses have a mass of credit card debt and are struggling to keep afloat!
Nowadays, through a lot of hard work and practice, I think I'm a lot better at discussing financial matters with family and friends. It helps people know what my priorities are, and why I might be saying no to that city break that everyone wants to go on this month, but it also helps others to talk about their situation, and what they might need help with. People I know come to me for financial advice because they know I won't judge them, and I'll tell them honestly what things are like for me. It's not always easy to talk about finances, but I really think it's important - and note, there's a difference between discussing a situation honestly and openly, and bragging. I can't stand those people.
Here are some psychological techniques to take control of your finances if you're feeling a little out of balance. If you're saving up for a house deposit, or a holiday, or whatever's important to you, they might help you to have a little more money left at the end of the month.
Pay yourself first
I'm not going to write about the importance of budgeting on this post - maybe I will in the future, but most people know that having a rough notion of your incoming money and outgoing expenses is a good idea. When it comes to saving, most people will wait until the end of the month and see what they have left before transferring it to their savings account. I don't think that's a great idea, as it gives you the impression that you have more money than you actually do, and gives you no incentive to actually save anything. Instead of doing it this way, treat your savings as the money that you are paying yourself - and you'd always pay yourself first, right?
By transferring a set amount of money into your savings account and making it slightly difficult to access (see tip four below) you're making it more likely that you will actually save money, as well as making yourself live on whatever is left over. I'm not saying that you should transfer three quarters of your salary into savings every month and go without food, but your future is just as important as your present, and if you have to sacrifice a couple of meals out to be able to go on holiday, that's not so bad.
Know your nudges
I LOVE succulents - for those who don't know, they're little green plants with thick, fleshy leaves. They're so cute and different and I'm unlikely to be able to kill them no matter how long I forget to water them for. If we go to a garden centre, I am going to want to buy succulents - I feel like I'm "rescuing" them from the cold, concrete building they're in. I know that I'm ridiculous, but I also know that succulents are one of the things that will gently nudge me into spending money. Other nudges include new music from my favourite artists, candles, and books. We have so many books!
Because I'm aware of the kinds of things that nudge me into spending money, I can either avoid them (e.g. I don't go into the Yankee Candle shop any more!) or I can accept that if I go to the garden centre I'm probably going to adopt a succulent, and have a little bit of money put aside for such situations (if you're following tip one above, this gets easier over time). That way I don't feel like I'm depriving myself too much, and another little plant gets rescued!
Treat yourself in other ways
If you've ever struggled with your finances you're probably very well acquainted with the ways in which you can treat yourself or enjoy life that don't cost much or any money. Where I live we have a few different nature reserves within walking distance, but I know I'm very lucky to be able to say that. Libraries are still free for the moment, thank god, and reading a good book is one of my favourite things. Outside of this, searching "free activities" and your area usually gives you some things to consider.
Ultimately, the thing I want you to consider is that you don't have to spend loads of money to treat yourself, or to have a good time. And if you're trying to keep up with the Joneses, my blog on hedonic adaptation might help you put paid to that!
Make it harder to access your money
This might sound a bit silly, but it's a proven psychological technique. If you have to do something additional to access your money, even if it's logging into a different online account and transferring it over, you're less likely to spend on impulse purchases. The time it takes allows you to really think about whether this is something you want to spend your money on or not. Putting your savings into an account where there is a slight delay in getting the money can also help, unless you might need it for an emergency (then, obviously, instant access is best).
You might have heard the tip about literally freezing your credit card as well - that sounds pretty extreme to me, but it provides the same "pause, think" process as keeping your money locked away, out of your current account. If you really can't stop spending and feel like you have absolutely no self-control, however, then tip five might be for you.
Consider financial therapy
If you're in a situation where you feel like it's hard to take control of your finances, and you need some help to work out what drives you to spend money, financial therapy can help. As previously stated, if you're struggling and in debt, StepChange is the way to go, but if you want to learn more about your spending patterns and how to change them, find a good therapist in your area or contact me.
What has helped you take control of your finances? Let me know in the comments.
Dr Sarah Blackshaw: Clinical Psychologist, blogger, tea drinker, interested in dinosaurs and shiny objects