|
 That is the advice of Sarah Newcomb, behavioral economist for
Chicago-based research firm Morningstar Inc, whose new book "Loaded"
is now hitting the shelves and Kindles.
She preaches this because before you can get into the nitty-gritty,
like monthly budgeting, you need to understand why you spend what
you spend, earn what you earn and believe what you believe.
Reuters sat down with Newcomb to talk about why your own personal
"Money Story" is so important.
Q: What is your 'Money Story'?
A: I had a lot of debt, I overspent, and basically lived
hand-to-mouth for years, with no savings at all. I had no money for
college and had to pass up my dream school because the price tag was
too high. Money had always been a barrier to my hopes and dreams,
and as a result, I came to hate it.
Eventually, I ended up taking a course on psychology and financial
planning, which addressed how your personal relationship with money
affects how you see yourself. At that point, a lightbulb really went
on. I realized if I always saw money as an enemy, I was never going
to be comfortable making a good living.
My own 'Money Story' was that either you care about people or you
care about money, and you have to choose sides. I chose people,
which meant I ignored money, and made my financial life a mess.
Q: What are a few common money-related stories that many people tend
to have?
A: Some people believe that money is the root of all evil. Some
believe that your net worth is connected to your personal worth.
Some believe that money makes the world go round. Some believe that
if you follow the money, you discover that everything in life is
corrupt. Some believe that you have to achieve financial status in
order to belong.
Ultimately, though, everyone's Money Story is unique.
Q: Once people unpack their own Money Story - then what?
A: This is where behavioral finance offers great hope, because there
are really specific things you can do to change money behaviors. For
instance, if you are focused too much on today and not saving
enough, you can do visualizations about the future. Imagine yourself
at 65, 70, 75, and how you want to be spending your time. The more
detail you put into that picture, the more you trick your brain into
believing that the picture is real.
[to top of second column] |
Q: Since we all want to earn more, how can behavioral finance help
people do that?
A: When people think about budgeting, they usually think about money
coming in from somewhere else. Instead, start to think of yourself
as the source of multiple income streams.
For instance, I knew a guy who used to be a wrestler, and who played
music on the side. So he started turning those things into real
value: he offered a few guitar lessons a month, and taught wrestling
to local kids.
Everyone has resources like that going unused. Maybe you just have
an extra room in your home that you can rent out to a college
student. If you are creative, you can create several new income
streams in your life without much effort.
Q: What about the spending side of the equation? How can people get
that under control?
A: Recognize that all expenses are serving a need. So instead of
just slashing expenses and then feeling angry and deprived, figure
out how to meet those same needs while spending less money.
For example, many people spend a lot of money going out to bars and
restaurants. They are meeting a social need - spending time with
their friends - but they are paying money to do it. You can meet the
same social need by doing something cheaper, like hosting a potluck.
With simple life changes like that you can be just as satisfied, but
spend way less.
Q: So what is the happy ending of your Money Story?
A: I care about people and I care about being financially healthy at
the same time. I can earn a good living and not feel guilty about
it.
(Editing by Lauren Young, G Crosse)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
