Many of us often complain about the lack of financial education when we were younger as one of the reasons that we are ‘not good with money’, or we ‘live from pay check to pay check’, but you are never too old to learn, and take in new information.

In order for us to be successful when it comes to our own finances, I have decided to compile a list of ‘lessons’ which I use to improve my financial mindset, and my approach to life.

I think it is the perfect time to post something like this as we are trying to set and keep to our New Year’s Resolutions in 2019.

Create Habits, Don’t Rely on your Self-Discipline

This is my number one item, because I think it relates very well to anyone achieving their financial goals.

The difference between a habit, and self-discipline in this context is that a habit becomes something mechanical which doesn’t require thought.

When can Self Discipline Fail?

Let’s have a practical example. You get paid a salary from your job of £3,000 each month.

You have £2,000 in expenses, and you tell yourself that you will save as much of the remaining £1,000 as you can.

You then head out to the shop, and think “I have £1,000 in my account, I can afford this £50 pair of shoes”.

You consistently rationalise that the purchase is a small percentage of your disposable income, and whittle it down to a small amount that you save (or you don’t save at all).

If you were to create a habit, this could be the outcome: You get paid a salary from your job of £3,000 each month.

You set aside £2,000 in expenses, and then as part of your monthly habit, you set aside £750 into a separate savings account, and then keep £250 for your personal spending through the month.

By allocating some disposable income to savings as an “expense”, you are taking away the personal discipline as a factor, and are able to save as part of a habit.

Seeing the savings increase regularly each month probably will give you more satisfaction than purchasing more consumer goods will.

This lesson applies to a lot of situations. Planning actions such as going to the gym, running, or reading rather than relying on your ability to ‘just do it’ should pay dividends in your life.

Don’t Defer, Start Today

In the same context as the first point, in order to even start creating a habit, you will need to take action sooner rather than later.

Humans are notorious for procrastinating. For those who say they need to go on a diet, how many times have you heard them say “I will start tomorrow”, or “I will do it properly from the 1st January”?

By putting it off, it is them telling themselves that they don’t have the discipline to do it just now, and are gambling on themselves having the motivation later.

Rather than defer, just start today.

You need to go on a diet, and you have already had a greasy breakfast this morning?

It doesn’t mean that you need to start from the clean slate of a new day.

You can start exercising or eating healthily from the point you convince yourself that this is what you need to do.

The same applies for other actions too; writing a book, but you have writer’s block? Just start writing anything, even if it is terrible.

You spent £100 today, so what is the harm in spending another £100?

Stop when you realise this might be a detriment!

It is something I like to do to improve my own productivity – I set aside 30 minutes of time to focus on one activity even if I am not sure what to do.

Once the time starts, I slowly get into it, and by the time the 30 minutes has finished, I feel like I am being productive enough to keep going.

Understand What you Can and Can’t Influence

There are a lot of factors in the world which are out of your control, and you need to understand that no matter what you do, it is unlikely that this will change; however you can create your own ‘luck’.

This means not playing the victim, rather it means playing the ‘game’ as well as you possibly can.

In the Stephen Covey book “Seven Habits of Highly Effective People”, he describes two circles (one within the other).

The outer circle refers to things you are concerned with such as the job market, your boss’s opinion of you, or the stock market, and the inner circle refers to things you have influence over.

Let’s say we are concerned with the job market. We worry because there are fewer jobs than normal, and there are many jobseekers looking which will make it more difficult for us to find something.

We could just complain about how hard it is to find a job, or we could increase our circle of influence.

This means developing marketable skills to give ourselves a greater chance of competing for those jobs.

This means practicing interview skills, or it means contacting those in your network who potentially can use their influence to help you.

This can also help you to get a better salary later, which can improve your personal situation further.

This is being proactive. By maximising all possibilities available to you, there will be a far greater number of doors open to you than there would be if you decided that the job market is tough, and you would fail anyway.

Stop Using Negative Language

Have you heard of a self-fulfilling prophesy?

This is a prediction which directly or indirectly causes something to be true, and is what I believe to be one of the reasons people believe that Psychics who claim to see the future, were able to ‘predict’ their clients’ next moves.

If we continue to use language such as “I can’t do that”, or “I am too old for that”, we are creating situations where we have already lost.

By saying this, we are creating an excuse that becomes entrenched in our minds, and that eventually become a self-fulfilling prophesy.

Instead of saying “I can’t do that”, change your language to “I haven’t developed the ability to do this yet”.

Rather than saying “I am too old for that”, change your language to “I might take me longer because I am older, but I can learn”.

Change your whole mind-set to a more positive one, because we only get one life, and it is too short to make excuses as if your chance to achieve anything has already passed.

Think about the marketable skills you may be able to learn if you stop being negative about your own prospects.

Don’t Be Overly Self-Critical, Play to your Strengths

We are only human, and you need to know how to get the most productivity from yourself.

Not everyone else is the same, so if you see someone able to work 16 hours straight, but you manage eight hours before cracking, then so be it.

You might be twice as productive in those eight hours, than they are in 16.

Increasing the time you work on something may not give you much of a productivity gain anyway, and may make you despise what you are trying to do.

Maybe you decided that you want to lose weight, and have started running to get fitter.

You hate doing it, but you constantly push yourself more and more each time to achieve your goal of reaching your desired weight.

Outside of your exercise regime, you like to play tennis, but it doesn’t burn calories as fast as running, so you don’t focus on it.

Despite this, it could potentially be far more effective for you achieving your goal even if it takes longer.

Not everyone prefers tennis over running, and we don’t all have to take the same path to the same goal.

Play to your own strengths to do this. Pleasure in life should be found in the journey as much as it is found in the goal.

Buy Quality, Don’t Fall for False Economy

This is more about what I spend my money on. Throughout my time studying at University – which I completed with a Masters with Distinction in Financial Economics – I was used to having a small amount of money to live on.

Inevitably, I bought cheap clothing to keep me going through my time. These clothes were poorly made, using bad materials (such as acrylic and polyester), and would not last more than a year before they needed to be replaced again.

Similarly, I always worked on the cheap value laptop which would seem to break a few days before the warranty ended, at which point it would need to be replaced.

Since I have graduated, and am earning, I have invested in items which are higher quality, and it proves the false economy of buying cheap items.

A good quality shirt which costs £40 can last for a decade; will be much better value than a £12 shirt from a high street clothes store which lasts a year.

If you count the cost of replacement, wearing cheap fashion in the decade would cost £120, whereas that quality shirt will have lasted, will feel great, and will have saved £80 in the long run.

The same applies for the laptop that I am using to type this article. I have had this now for four years, and it was twice the price of the laptops I used to buy at University.

It’s ‘Cost per Year’ is now less than the cost of those cheap alternatives.

Reframe Your Thinking

If you are working towards a goal, it is easy to be disheartened by the fact that you usually have to give something up to achieve it.

Let’s say you need to save £10,000 by December 2019 because you plan to start a new business.

You have decided that you will cut your phone bill by selling your iPhone, and buying a cheap Pay as you Go handset, and you have decided to cancel your Netflix and Spotify subscriptions to help.

Instead of seeing the negative of not being able to have those things, change your mindset to instead be pleased that giving these entertainment sources up temporarily in order to bring forward the reaching of your goal!

You can reframe your thinking for a lot of situations:

I have cut out alcohol and processed sugar to lose weight. Rather than be negative about not having these temptations, I will be motivated by the fact that I have been able to form a habit on the path to self-improvement.

I have to cut out spending on Netflix and Spotify. Rather than be negative, I think about the fact that you will get to my goal sooner, rather than later.

Invest in Experiences, Not Things

Have you ever had that feeling where you impulse buy something, only to regret it moments later?

Of course you could return the item for a refund, or you try and use it more to justify your frivolous purchase.

A year later, the item becomes redundant, and a new model is in the market which makes you wonder what you are missing out on.

This level of materialism is vacuous, and leaves us with few valuable memories, and takes a large chunk of change from our pockets.

One thing that I have started to really focus on recently is to invest in experiences.

Ever since pushing myself to become less materialistic, I have been able to visit Sweden, Norway, Denmark, The Netherlands, France, Spain, Portugal and Greece in a matter of three years, in addition to dining at multiple Michelin star restaurants, and many live events from festivals, opera, ballet and many more.

There was a study performed at the University of Colorado that looked into the self-reported happiness levels of people, and then asked whether their most recent purchase was experiential or material.

The results showed that material goods gave far less happiness, for three reasons:

  • Material possessions depreciate or degrade over time. Memories from experiences get better due to nostalgia bias,
  • You might buy the new iPhone because your friends have them too which creates a negative competition effect, as opposed to experiences which stand on their own,
  • You can bond with friends and family with experiences, which is something that is not as common with material goods.

Money Does Buy Happiness

I wanted to leave this controversial one until last, as it is quite common for people to repeat the quote “money doesn’t buy you happiness”.

Outside of the usual retorts such as “It’s more comfortable to cry in a Ferrari”, it was scientifically proven that this quote is actually false.

The more we earn, the happier we are (up to a certain level). If your boss said to you “we are going to increase your salary from £30,000 to £50,000”, do you think you would be less happy?

Consider the financial security that extra income provides.

Researchers in the US showed that marginal gains in happiness for each dollar earned increased up until $75,000 in household income, after which it remains constant.

There are other studies that place this plateau higher, but it shows that money does actually buy happiness.

If you still aren’t convinced, look at it another way, not having money can make you unhappy.

I don’t buy that people think that there is an inverse relationship between money and happiness.