Everything that makes up your personality—your values, your experiences, and your culture—directly affects your spending habits more than you might think.
“Financial psychology is about the humanity of money: how people think, feel, and act about their money [and] “Their relationship with money is past, present, and future,” said financial psychologist Preston D. Cherry, also a certified financial planner and founder and president of Synchronized Financial Planning in Green Bay, Wisconsin.
Who you contribute to is what your money does and where your money goes, says CherryAnd Who is on the CNBC Financial Advisor Board. Certain forms of social conditioning, such as budgeting, also play a role in people’s spending habits.
Budgets help address maladaptive financial behavior or areas where you need control, such as overspending or leakage spending. However, it is limited in nature.
Psychologically, “budgets” seem restrictive. Spending Plans “look much better,” he said — they offer more freedom and flexibility.
Spending plans act as a kind of “reverse balancing act,” where you can save and invest for your future while still having the opportunity to enjoy life in the present.
“It’s about giving yourself permission to start the stage of life you’re in and then move on to the next,” Cherry said.
How to make your life lead your money
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To promote financial wellness, Cherry invites people to be intentional and aware of their financial thoughts and actions through what he calls the “6-A Alignment System.”
The first three are about evaluation and setting your intention:
- Acknowledge where you are on your journey. Jumpstart your financial journey quickly by being honest with yourself about where you stand. “Everyone’s journey is personal and unique to them, like a thumbprint,” he said.
- Acknowledge how you feel about it. Know your feelings about where you are with grace and compassion.
- Take action in your life. At this point, you’re diverting your energy toward your goals and “moving forward with your life’s vision and design,” Cherry said.
“And then there are the next three as follows: conformity, ambition, and achievement,” he continued. Aligning your life desires, aspiring to do those things and then moving forward to achieve them.
“It’s practical,” Cherry said.
He said that financial clemency pays off over time.
“You start with financial compassion. Once you have completed that process, you can go on to financial education.” So you have financial literacy, which is informed behaviors and decisions.
“It’s all because you’ve given yourself financial empathy, you get to this equilibrium state, that you have your life driving your money, not your money driving your life.”