How Your Money Beliefs Hardwire Your Decisions

How Your Money Beliefs Hardwire Your Decisions 03 24 2015Imagine a 12-step meeting for handling your money life:

“Hello, my name is Samantha. I am 34 years old and I know nothing about personal finance.”

“Hello, Samantha” comes a chorus of voices from the audience.

Another attendee rises from the group: “Hello, my name is Charlie. I am 55 years old and I still haven’t figured out how to manage my financial life.”

A welcome chorus reverberates from the crowd.

“Hello, my name is Patty. I am 62 and I’ve struggled with understanding money all my life.”

“Hello, my name is Peter. I just got out of college and I don’t even know what I don’t know.” 

Getting community support for your money education would be vastly improved if we brought it into the light. We live in a society where we just don’t talk openly about money—which makes it that much more difficult to do it well. You’re more likely to get people talking about their favorite “positions”(we’re not talking Right Fielder here) before they’ll open up about how much they save or spend. Money is personal and our knowledge about money is an even more closely guarded secret.

Getting financially literate can be a battle of epic proportions: No one wants to admit what they don’t know; many don’t know where to get real (unbiased) information; and, in our crazy-busy lives, no one has the time to learn. It’s a vicious cycle. Instead, financial decisions are made based on the pitch made by stockbrokers, insurance agents and others who have a vested interest in selling you their product.

Financial literacy is not just paying your bills or choosing 401(k) options from a menu. It’s comfort with money, being able to navigate choices, understanding the ramifications of your decisions and synthesizing risks, time constraints and the likelihood of unexpected life transitions. Financial literates know what they don’t know and ask good questions. They recognize that money is a tool to achieve their values, not something that is a weapon, a totem or a means to exert power over others.

It’s never too late to gain comfort with money and certainly never too early. The longer you delay the process, the greater the height of the wall (of fear) you need to scale. Think about what you believe about money. Take a moment to write down your beliefs. For example, I have heard people say, “I believe money is the most important thing in life” or “I believe money is a tool to help my family” or “Money is the root of all evil”. Those are all money beliefs. What are yours?

When you look at what you really believe about money and your relationship to money, can you see what works and what might be slowing you down?

Now, think about your friends, neighbors, colleagues and family. How many of them do you believe really know about money and have a well-balanced relationship with money? Ask yourself what would happen if you asked them about their attitudes (not how much they make) about money, their comfort with making financial decisions and how they gained their knowledge. If they tell you that they just listen to their stockbroker, you’re probably talking to the wrong person. But if they tell you that they read books and articles, consult with their CPA, Attorney and Planner and get various opinions and ideas, then dig in and ask more good questions.

Start small. Gaining financial comfort is about accumulating information and experience. We’re talking eye-dropper and bucket type learning.  You work one idea at a time, learning and applying the information. For example, if you have a mortgage with a higher than market rate, how do you determine whether it makes sense to refinance? Here are some of the questions to ask:

  1. What are my payments for my current mortgage (just principal and interest)?
  2. What would the new payments be for a refinanced mortgage? (of the same type of mortgage)
  3. How many years do I have left on my current mortgage?
  4. How many more years am I extending my debt?
  5. What is the overall cost of the debt over the term of each mortgage?
  6. How much are the closing costs, all in, and how are they paid?
  7. What is the payback period of the closing costs?
  8. How long do I expect to live in my house?
  9. What would be the impact of a lower interest rate and a shorter term for the mortgage?

Armed with these answers, you are ready to make a rational decision. Even if you’re not good at math, certain things are pretty obvious.  Let’s say you’re expecting to live in your home for the next four years and the payback period of the closing costs is five years, then there is no good reason to do this. If you can lower your interest rate and shorten the term (lowering your overall cost of the mortgage) with the same (or less) than you are spending now, then this may be a great idea. Don’t you feel smarter already? And it just took nine questions.

There’s no need to remain armed with shame over a lack of knowledge—it keeps you in a state of disconnection and disaffection with your money. It’s time to renounce any blame and bad feeling over what you haven’t attained to this point in your financial wisdom and begin. Drop by drop.

“Hello, my name is Karen. I am 51 years old and I am learning to take control of my financial life—and it feels GREAT!”

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