Avoid “Thinking Traps” in Financial Preparation

stressIt is hard to believe that 72% of those living in the wealthiest country on earth report that they have felt some level of stress over money in the last month, but for almost 3/4ths of American’s, this is true. In fact, half of those living in the U.S. are so stressed out that they admit to losing sleep over finances. Are you one of those Americans losing sleep over your finances?

In 2015, the Federal Reserve conducted a survey and found out that almost half of U.S. households reported that they could not cover a $400 emergency expense without selling something or borrowing the funds. With the median income hovering around $56,000 a year, it is hard to believe that 46% of those people could not cover a burst pipe, leaky roof, or car trouble.

Relax About Money

With stocks soaring to an all-time high, breaking record after record, and real estate prices going up, some people do have growing anxiety concerning their control of their personal finances. Companies like Capital One are seizing on this anxiety and offering tours in 10 cities in the U.S. that help to reimagine the banking experience. In addition to their U.S. tour, they have opened up a Capital One Café where people can eat, drink, and seek financial advice. With complimentary money coaching sessions, people can learn more about how to manage their finances.

Facts About Finances

Some interesting financial facts regarding those living in the United States is the question regarding personal wealth. According to a survey conducted by the Financial Samurai, it seems that those who read personal finance sites on a regular basis have more money, or it may be that those who have more money have a proclivity towards reading financial sites. It’s a chicken and egg question. Some facts based on the Financial Samurai reader demographic include:

  • Age – Over 3/4ths are between 26 – 45
  • Annual Income – Over half make over $100,000, with 1/3rd of those making between between $100,000 to $200,000 yearly
  • Primary Residence = 39% reported a home value of between $250,000 and $500,000 with most homeowners refinancing at least once in the last 10 years
  • Retirement – Excluding the value of their homes, over 75% report having saved over $100,000 for retirement, with almost 20% saving over a whopping $1 million
  • Social Status/Class – Low, middle, or affluent—67% believe that they fall into the last group and 20% in the middle class group
  • Education – Over 90% went to college
  • Debt – Over half report having $0 in consumer debt with total debt (including mortgage, student loans, credit cards, etc.) running between $150,000 and $500,000
  • Net Worth – Over 1/3rd have a total net worth of between $300,000 and $1 million and 80% track their net worth with free tools on the internet
  • 401k/IRA – 63% report having over $100,000 in their 401k or IRA
  • Savings – Over half reported that they save at least 15% of their income monthly

Stress Over Finances

Saving money can be difficult for many people. According to Forbes, there are several “thinking traps” that potential savers find themselves in when thinking about spending and saving money.

Trap #1: The Blame Game

This is a “my fault, your fault” mentality. Many people blame themselves or others when money problems arise. Instead, change the negative thinking into positive statements. For example, if a person is not saving as much as wanted, they may personalize the thought as, “I am never going to save money.”

Change that negative into a positive. For example, think positive by telling yourself, “I know that my check does not allow me to save right now, but I am going to decrease my spending, work a second job, or take other steps to change that.” Then, focus on the steps and take action.

Trap #2: The Good, the Bad, and the Money

Often, human nature focuses on the bad and our thoughts are then consumed by negative thoughts. Instead, focus on the good results to keep the motivation going. For example, paying off a student loan debt, a person has committed to paying an extra $200 per month toward the debt. After 6 months, they look at what they still owe and become discouraged.

Instead of looking at the debt amount, look at the amount owed 6 months ago compared to what is owed now. Seeing the overall debt decrease will give a person more of a boost than looking at the amount still owed.

Set mini-goals that let your mind celebrate in a positive way. In the student loan example, every time another $1,000 is knocked off of the principal debt, cross off another dollar sign from your student loan page. These small mini-rewards will keep a person motivated until the large goal is reached.

Trap #3: Thinking in General Terms

Overgeneralizing what a person thinks about others and their financial situation is a definite trap. Just because a neighbor has a McMansion and a Ferrari in the garage doesn’t mean that they have some secret formula that allows them to make and save more money. In fact, most people who live with a flashy lifestyle are deep in debt with no savings. According to a study on millionaires, many of them tend to drive used cars.

By changing how a person thinks, their overall financial situation can improve, allowing them to save for retirement. Taking proactive steps to be aware of their financial situation, limit spending, and live within their means are just a few steps people can take to reduce their overall financial stress and prepare themselves for their financial future full of peace and relaxation.

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