Have you ever wondered why, despite your best intentions, you sometimes make financial decisions that you regret later?
In our complex financial world, it's not just the numbers that determine our financial outcomes, but our thoughts and behaviours as well.
The Psychology of Money
CBT is a therapeutic approach that focuses on identifying and reshaping negative thought patterns and behaviours.
Past experiences, especially those from childhood, cast a lasting impression on our financial beliefs. We're often unaware of them, but phrases like "Money can't buy happiness." or "Rich people are greedy." can greatly influence our financial decisions. Emotions like fear or excitement often drive our spending habits, sometimes leading to regrets or financial strain.
Drawing from the field of cognitive behavioural therapy (CBT) - a psychological approach traditionally used to treat mental health disorders - we can uncover strategies to better manage our money.
CBT is a therapeutic approach that focuses on identifying and reshaping negative thought patterns and behaviours. It's grounded in the belief that our thoughts influence our actions and emotions. Through CBT, individuals can develop strategies to challenge and alter these unhelpful patterns, leading to positive changes in behaviour and emotional well-being.
Below are some of the strategies that help our clients change their financial behaviour for the better, save more, spend less and invest for the future.
Strategies for Better Money Management
Understanding Automatic Negative Thoughts (ANTs) in Finances:
We all have ANTs from time to time, like "I'll never be able to save enough." or "I'm terrible with money." A lot of these beliefs have been hardwired into our subconscious from childhood or past experiences, but they can be addressed.
Recognising these thoughts is the first step. Write them down and challenge their validity. For example, have you always been bad with money or just had a few slip-ups? Where did you first hear this narrative? Who told you it and is it true?
The Power of Positive Reframing:
The majority of our thoughts are automatic, which means we have them without consciously being aware, and due to loss aversion and awareness of threats, they tend to be mainly negative too. But by intercepting the negative cycle, you can start to shift your automatic thinking into a positive space.
Instead of thinking "I can't afford this.", consider saying "I'm choosing to spend my money on other priorities right now." This subtle change in language empowers you, reminding you of your agency in financial decisions and reinforcing the positive narrative.
Setting Clear Financial Goals:
When we have a clear understanding of what we're striving for, such as buying a house, going on a holiday, or retiring early, our behaviours align more closely with our objectives. The term "cognitive priming" helps explain why being clear on our goals and keeping them at the forefront of our minds helps us be more successful at achieving them. Cognitive priming is all about preparing our mind to recognise resources that will help us achieve our goals, therefore keeping the brain connections active and the goals at the forefront.
Use the SMART goal framework (Specific, Measurable, Achievable, Relevant, Time-bound) to outline your financial aspirations, and actively make the effort to review them and keep track of your progress.
Test out a new approach to money management. If you're unsure about a financial decision, run a small experiment. For instance, if you're considering cutting down on dining out to save money, try it for a month and see how much you save and how you feel.
Get clear about what you want the outcome to be, build a plan on how you will achieve it, and monitor progress. At the end of the assigned period, review the change you saw and celebrate your commitment to the process!
Mindfulness and Money:
Being present in the moment helps us become more aware of our spending triggers. If you notice you often splurge when you're feeling stressed or down, mindfulness can help you pause and consider whether you genuinely want to make that purchase or if it's just a reaction to your emotions.
A simple guide to shifting your money mindset
Seeking External Feedback:
Sometimes, we're too close to a problem to see it objectively. Discussing your financial habits and beliefs with a trusted friend or professional can provide valuable insights and challenge any limiting beliefs.
Seeking support from a coach can help you work through the mental blockages you have, identify the goals you seek and build a plan to achieve them.
Establishing Financial Habits:
CBT is big on routines. Setting regular financial habits, like reviewing your bank statements, setting budgets, or having monthly money check-ins, can significantly improve your financial health over time.
One key tip for building and maintaining habits is to build in rewards, create a clear cue to remind you of the habit and repeat the activity at the same time, day and place.
By utilising CBT techniques tailored for financial management, individuals can address the root causes of their monetary behaviours, leading to more informed, confident decisions. Just as CBT can help one overcome anxiety or depression, it can also aid in creating a healthier relationship with money. After all, it's not just about the pounds and pence but the thought patterns behind them.
If you are keen to address financial blockers and unhelpful money habits, or learn money management techniques, do get in touch using the button below to find out more about the options available.