The key to financial success seems obvious: save a lot, spend a little. But it's a bit more complicated than that. (There's a reason why sticking to a budget is a lot harder than making one.) The way we feel about spending and saving and the beliefs we have about money profoundly affect the way we approach our finances—and can often override our more logical thoughts.
These beliefs are called "money scripts," and we start developing them as children. As we grow up, our parents, environment, and interactions with money influence these beliefs. Some of these scripts help us—think of a friend who seemingly has the super power to find amazing bargains, or one who pays off loans at light speed. But we can also develop harmful scripts that interfere with our ability to be financially responsible.
Spend Your Cares Away?
One of the most common problematic scripts is the idea that spending will bring you happiness. If you're the kind of person who must buy new shoes to de-stress after a bad day, this might be one of your scripts.
Spending money on things you want isn't bad, of course. What fun would financial responsibility be if you didn't get to splurge every now and then? But you should buy things because you actually want them, not because the act of purchasing something helps you chill out. There will always be annoying bosses, canceled plans, and lost wallets: You don't want big-ticket purchases to be your coping device.
Believing you will always have enough money, without any basis in reality, is another common script. Even if they've emptied their checking account for a flat-screen TV and entertainment system to match, people with this script don't worry about whether it was a responsible purchase. Somehow, the universe will ensure their financial solvency. It's a perfectly illogical belief, sure, but many people who have never handled their own finances fall into this trap. We all hope that our bank accounts will never run dry, but this attitude can prevent people from limiting their spending and saving for the future.
Dollars And Stress
On the flip side, there are people who are in constant fear of having no money. These people are extra careful about over-spending and save religiously. We know what you're thinking: It sounds like a habit you'd love to have. But there are downsides to this script. First, there's an emotional benefit to treating yourself well every now and then—serial penny-pinchers miss out on the pleasure of an impromptu weekend getaway or night on the town.
On top of that, this script could lead someone to panic every time a large expense crops up. When you're dealing with tricky financial situations, panicking is the last thing you want to do. You need to be focused and rational—and recognize that you can bounce back from a drop in your bank account, even if it's a serious one. You don't want to make the wrong choices at a critical moment because of your worries.
Setting Your Own Standards
Finally, there are scripts that dictate what we spend our money on, not just how we spend it. If you believe the most important thing in life is having a huge apartment, wearing the best clothes, or owning (at least one of) every Apple product, pursuing these goals could easily land you in trouble. You don't have to avoid spending on these items entirely, but you'll be better off if you realize how much spending is realistic for you.
How can you do this, especially when we so often follow our money beliefs unknowingly? When you develop your budget, consider the reasons you assign different amounts for certain categories and question these patterns. Are you cutting into your food budget to free up cash for clothes? Is it hard to bring yourself to include a monthly addition to your savings?
When you deviate from the plan you create, ask yourself what's pushing you to do so—what might seem like a necessity on the surface could be something else entirely. Identifying these money scripts won't automatically fix them. But if you know your habits as you deal with your finances, you'll be better able to avoid repeating mistakes.