4 realities that get in the way of good financial habits and tips to overcome them
In a recent post, 3 habits to help you improve your financial health, I introduced the idea that financial well-being is made up of two parts: financial wealth and financial health. In this blog, I explain why the cards are stacked against us when it comes to having good financial habits and I provide tips to overcome these challenges.
As many of you know, I'm a proud father of two teenage boys. We were recently playing cards and I was asked to explain the saying "the cards are stacked against you," which led to a discussion about good financial habits. Our conversation was the catalyst for this post.
In cards, the cards are stacked against you means your chances of winning are unfavorable. When it comes to having good financial behaviours and habits, the reality of modern-day life and our psychological biases, get in the way of success. I highlight these so that we are aware of the forces at play and what we can do to overcome them.
#1 We are juggling a lot of money concerns
Canadians are stressed about money. We are juggling lots of concerns like the financial pressures of raising kids, helping aging parents, soaring housing prices, costs of post-secondary education, paying down debt and saving for retirement. It's a lot, and it can be overwhelming.
With everything competing for our limited resources, it’s no wonder it's hard to maintain good financial habits. It's easier and frankly more appealing to pour a glass of wine and turn on Netflix.
Ignoring finances may feel good today, but it doesn't make the problems or stress go away. You can either be reactive or proactive here. You can't do it all at once, so set priorities and make a plan.
Tip – Proactively engage with your finances and take control. Spend an hour a week on your finances, prioritize, set goals, and monitor your success. By engaging with your finances, you’ll feel in control, it will become a habit that will pay off in spades.
#2 We live in a "culture of now," "keeping up with the Joneses," and "FOMO."
Regardless of where we are in the economic cycle, we do live in good times. We can download an app and have food dropped off at our front door in minutes. Want a product? No problem. Buy it on Amazon and have it delivered to your door the next morning.
While these advances are incredible, they have influenced consumer expectations and spilled over into financial behaviours. We are now accustomed to getting what we want, when we want it, and preferably now. This has fueled excessive discretionary spending, buying the things we “want” versus really “need.” It has also created an expectation that investment returns happen overnight – more on that in a later post.
We all know that keeping up with the Joneses is a bad idea, but many keep doing it. Consciously or subconsciously, we often compare ourselves to someone who’s done more, traveled more, has more, or earns more. We look at their bigger houses, pools, cottages, memberships, cars, vacations, shoes, and latest gadgets…and think we deserve that too, often resulting in increased discretionary spending and the use of credit to acquire these items.
With social media, we are exposed to a broader audience of influencers depicting a beautiful, luxurious, happy life full of luxury. In case you didn’t already know, many of these influencers are paid to promote products, services, or experiences.
Social media is a powerful marketing channel, used to create a need and get consumers thinking – “I got to have it,” or there is a fear of missing out (FOMO). I would like to think it's only my boys who experience FOMO but, I admit, I also get caught up in it sometimes.
Whether you refer to it as Keeping up with the Joneses or FOMO, they lead to overspending, taking on more debt, and often more stress. More stuff doesn’t make us happy. In fact, a study indicated the more often you compare yourself to others, the worse the impact on your finances and financial well-being.  As you may recall from an earlier post, your financial well-being is comprised of two parts: your financial health and wealth.
Tip – Practice gratitude and make realistic comparisons: You are going to compare yourself to others; it’s human nature. Start with someone who may not be as fortunate, taking time to notice and reflect upon the things and experiences you are thankful for. When comparing upward, pick someone who is a role model, ideally of similar economic circumstances, with whom you have more in common.
#3 We get caught up in Lifestyle Inflation
As we advance in our careers, this often comes with promotions and/or increases in our income. Lifestyle inflation refers to an increase in spending when an individual's income goes up. Essentially, the more we make, the more we spend. If we continue to spend more every time we make more money, it can make it more challenging to get out of debt, build savings, and invest for longer-term goals like retirement.
Lifestyle inflation often causes people to get stuck in a cycle of living paycheck to paycheck, which is a reality for many Canadians.
Tip – Put extra earnings to strategic use: When you make more, use the excess to improve your net worth. Depending on your situation, it could be paying down debt, building savings, or investing for a longer-term goal.
#4 We are wired for the present and not the future
If you struggle with the thought of saving for the future, you are not alone. Most people have what's called present bias. We put more weight on instant gratification, the immediate pay-off we feel from buying something today versus the pay-off we feel about saving for the future, thus making it harder for us to wrap our heads around saving and investing for retirement.
Behavioral scientists say this is because we feel disconnected from our future self as if we are looking at someone else. Having a financial plan with long-term goals that you revisit regularly is a given. Still, you need to find a way to emotionally connect with that plan. I see first-hand clients who are emotionally connected with their plan are 10x more likely to stick with it.
Planning for the future involves thinking about your future self, spouse, and children. Try connecting with your future self by trying one of the many apps (e.g., FaceApp, AgingBooth, Oldify) to see what you will look like in the future. The act of seeing yourself age is said to help you connect with and plan for your future. It may also make you consider lifestyle changes to improve the aging process. It did for me!
Tip - Give yourself a present in the present – your future self will thank you: Every time you save and invest money for the future, think of it as creating an army of people working for you and your future self. If you struggle with this one, find an immediate benefit from doing something you will benefit from. Example: I have a client who has maximized her RRSP every year since she started working. She said, “I knew it was the right thing to do with the power of time and compounding, but what convinced me was the immediate tax benefit I saw every year”.
The realities of life may have you feeling like the odds are stacked against you when it comes to good financial health. Still, they can easily be overcome with commitment and time. I've worked with hundreds of families over my career, many financially stable and very well-off but still tormented by their finances. As a financial coach, I help them reduce their financial anxiety, increase their confidence, and improve their financial well-being.
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