How much power do you feel you have over your money? Your happiness as well as your financial well-being may depend on it, a new study finds.
Whether low-income or high, people who think they have power over their finances are happier than those who think they have very little power over their finances, says Morningstar, the investment research company.
“People who feel powerful are happier, and people who feel powerful do save more,” Sarah Newcomb, a behavioral economist at Morningstar and its financial guidance subsidiary, HelloWallet, tells Money Talks News.
“A sense of personal power, not money itself, may be the key to peace, joy, pride and satisfaction in our financial lives,” Newcomb wrote in a recent article on Medium.com.
People who feel they have no control, even if they’re make more than $200,000 a year, are not as happy as those making less than $10,000 but do feel they are in control, Newcomb writes of the findings of a study by Morningstar’s Behavioral Insights Team. The findings will be part of a Morningstar white paper, scheduled for April release, on the psychological factors of financial well-being.
Newcomb and Stacey Black, a financial educator at BECU, Washington state’s largest credit union, offer tips to Money Talks News readers on taking control of what Newcomb calls your “personal economy.”
1. Change your thinking
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Newcomb, author of the book “Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind,” says taking control starts with your thoughts, how you think about your financial situation, rather than just tediously listing your income and expenses on an app to see if your cash flow is out of whack.
“Why do I need apps to tell me I’m broke if I’m disempowered?” she says. “Focus on your thinking.”
“If we think differently, we behave differently; we have the power,” she says.
2. List what you can control
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You control certain areas of spending whether you have a lot of money or not, Newcomb says. For example, think about choosing when to file your tax return, like sooner rather than at the last minute or not doing it all.
Even if you are not the primary earner, you may have much more control over your financial life than you think. Do you do the shopping, help decide on vacations, living costs, children’s schooling? Do you support the breadwinner emotionally?
You may feel helpless or worn down by a financial struggle, but don’t focus on the mechanics, Newcomb says. Instead, focus on your feelings.
If you feel the power you have, your sense of financial well-being may naturally improve, she says.
3. List what you can’t control
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In the short-term, maybe you can’t change your salary, rent or mortgage, bills, location or schedule, Newcomb says.
You also might not be able to control:
- Dependents: If you care for children or parents, you cannot control the fact that this will put a drain on your resources (financial and physical).
- Geography: Maybe you can’t move, which may affect your cost of living as well as the job opportunities available.
- Time: Maybe you can’t always make your schedule perfect and, like everyone else, you’re limited to 24-hour days.
- Other people: You can’t control your spouse’s priorities, salary or habits.
When you list what is out of your control, you may find things may be more flexible than you think, Newcomb says.
“In the long term almost everything is changeable if you have a plan, and you invest in making the changes necessary to adjust your life to better suit you,” she says. “That’s the purpose of the exercise: When you try to think about what you can’t control, you may find that you really can do more to change your situation than you thought.”
4. Put time on your side
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How far ahead do you think about money? A week? A month? Five years? That’s your time horizon.
A recent study, which will also be part of Morningstar’s white paper, revealed that how far ahead people think has a connection to how much money they have saved.
On average, people earning $50,000 a year and looking far ahead, like to retirement, saved more actual dollars, not just as a percent of income, than those making $100,000 but who didn’t look far ahead, Newcomb says.
You can train yourself to extend your time horizon, she says:
- If you need inspiration, look at yourself through online age-progression software that will use a picture of you now to generate what you may look like in 20 years.
- Write a detailed essay visualizing the details of your retirement: Where will you live — city, suburb, countryside? How will you spend your time? Who will you spend your time with?
- If you only look out a month or two now, then by the end of 2017, have a one-year plan. Once you have the one-year plan, try making a three-year plan; or if you have a three-year plan, go for five.
If you train your imagination to see a bit further into the future, you will save more money over time, Newcomb says. Otherwise you will be at a higher risk for a higher debt-to-income ratio, lower savings rate and more impulsive spending.
“It doesn’t cost more to think ahead,” Newcomb says.
5. Visualize your goals
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Most of us don’t save, Newcomb says — “We’re not wired for it.”
According a 2015 survey by the U.S. Federal Reserve, nearly half (46 percent) of Americans surveyed wouldn’t have enough money socked away to handle even an emergency expense costing $400.
A third of Americans say they have no money saved for retirement, according to surveys conducted for GoBankingRates.com. Nearly 1 in 4 has less than $10,000.
Newcomb explains in her book that going for the immediate reward instead of focusing on long-term goals — known as discounting the future — is responsible for many types of goal-defeating behaviors such as procrastination, drug addiction, impulsive shopping and failure to save money for the future.
To reach your goals, Black suggests visualizing what is most important to you: “Do you want to pay off existing debt, start saving for retirement, or plan to purchase a car or house?” If you feel you have to cut back now to save, remember what you’re working toward, Black says.
6. Think of fulfilling needs
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Budgeting doesn’t have to feel like a diet where you’re always tightening your belt and feeling unhappy, Newcomb says.
Instead, she says, every expense you choose to make can be seen as part of a strategy for meeting a personal, underlying need.
Shopping for groceries may meet the need for food, but it’s also something that serves to nurture children. Your home is a shelter, but maybe spending on it also gives you a place for social connection, comfort, peace or solitude. Or maybe you need to fulfill a need for fun or beauty.
It helps to realize that every dollar you spend does not disappear but instead fulfills your needs or the needs of loved ones, Newcomb says. Think about choosing to pay your phone bill as: “I want communications; I love talking to my friends.”
Once you see that your money doesn’t flow away from you but works to serve you, it should be easier to see how you can lower expenses while meeting needs, she says.
If, for example, you like going out to expensive lunches with your office mates because it fulfills a need to socialize with co-workers, maybe you can organize potlucks in the break room instead — you’ll still socialize, but the lunches will be less expensive.
7. Celebrate your victories
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Feeling powerful even when you’re in debt can be difficult emotionally. To do that, you need to change the story you’re telling yourself, Newcomb says.
What do you think when you pay down $1,000 on a credit card? You could feel like you’re not getting ahead but just filling a hole. You don’t get to see a physical return for your paying off debt.
“Money feels like it’s gone, and that feels disempowering,” she says.
But instead, she suggests, look at what you’ve just done: You’ve just increased your net worth, plus you’ve avoided more interest payments on the $1,000. Your net worth is more stable.
Do you tell yourself you’re cursed when every time you think you’re getting ahead, something happens and takes all your extra money, like the car breaking down or your kid getting sick? Perhaps, Newcomb says, you should change your story and feel blessed or smart enough that you have the ability to cover life’s surprising expenses.
“Celebrate every positive thing, like ‘Are you doing better than last year?’ ” Newcomb says. “Did you feed your kids today? Good, celebrate that. A lot of people can’t.”
And don’t worry about what other people have that you don’t. “The person carrying a Louis Vuitton purse, you don’t know if she’s crying in the shower over her credit card bill,” she says.
8. Enjoy your positive payoff
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Money is the No. 1 cause of stress, no matter the economic climate, Newcomb says, citing the annual survey of the American Psychological Association.
“Well-being is an important but unmentioned part of financial health,” Newcomb says.
Financial advisers see clients who actually have so much money they’ll never outlive it but who have so much anxiety and feel so stressed out about money they can’t even buy their grandchild a birthday present, she says.
When you feel in control of your money, your stress goes down. Lower stress leads to better sleep, a better quality of life, better relationships — all benefits you get even without having more money, Newcomb says.
“When you’re stressed out, you may get sick, miss work, lose your job and get caught in a poverty trap because you feel you can’t afford life. When we feel the power we have, when we take one little step forward, instead of stress we end up in a positive feedback loop.”
Do you feel in control of your financial destiny?
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