Overcoming bad financial habits

Some people find it almost impossible to achieve their financial goals. We are unable to save regularly, talk less of building an investment portfolio commensurate to our earnings. We shift blame and complain that our salary is not enough, or we have too many dependents or even blame the economy as not being  encouraging for wealth creation. If we are to be honest with ourselves, we would see that others with lower incomes and or more dependents, living in our very own Nigeria are able to commit themselves to financial discipline and achieve their financial goals. So, what then are the factors limiting our finances? What habits are tripping us in our financial journey?

Not paying yourself anything – you work for thirty days, collect the salary from your employer and straightaway disburse the money to others. I call this the post office mentality. You share your salary out amongst the petrol station, supermarket, fast foods restaurant, night club etc, but you keep nothing for yourself. That habit must be broken. Pay yourself something monthly by putting something in your investment account. Pay yourself first. Don’t save what is left after spending. Spend what is left after saving.

Spending money you are yet to earn – buying on credit, debiting the future. By the time the money is earned it comes as insufficient. Making big purchases like homes and cars using credit makes financial sense, but consumer goods like clothes, telephones and jewellery or dining out and clubbing should not be paid for with credit. In some societies, there is a need to create a credit history using credit cards, such purchases should be paid in full at the end of the cycle. Avoid paying “minimum due.” Anyway, alternative credit scoring methods have been developed, people don’t have to go into debt before their ability to manage mortgages can be assessed. Alternative credit scoring uses data from mobile phone accounts, utility companies and other financial transactions. No one should be buying small items on credit anymore.

• Still on vote buying, selling

Impulse buying – seeing something you like and buying it even though you have no need for it, neither did you plan to buy it before seeing it. A person committed to a monthly spending budget would find it difficult to do impulse shopping, because, there would be no provision for the item in her budget. My solution for impulse buying is delayed gratification – sleep over the decision to buy. If you still feel like buying the next day, go ahead. But experience has shown that over 90% of people do not make the purchase anymore.

Retail therapy – spending, especially impulse buying as a means of getting temporary emotional relief and happiness. Such purchases are usually extra-budgetary and derail our financial goals. Since the emotional relief we get from retail therapy is temporary and the financial damage is more lasting, we need to find better solutions to emotional stress. Time out with friends, prayer and meditation, counselling and even charity visits bring more lasting emotional relief without devastating financial side effects.

Competition – buying to impress or outshine others – usually, the competition is with perishable consumer goods and it creates avoidable debt. I once heard a definition of madness that fits well here – buying what you don’t need, with money you don’t have, to impress people you don’t like. We need to get out of the rat race, because even if you win the race, you are still a rat. If you must compete (and I am not suggesting that you should), compete in more durable things like size of money market investments or number of shares in blue-chip companies. At least you get lasting benefits from the competition.

Breakthrough mentality – some people refuse to commit to systematic wealth growing because they are expecting a breakthrough that would bring them instant riches. But a person who does not have good financial management skills would not know how to manage the windfall and ultimately lose the breakthrough wealth. Before wealth management plans became compulsory for lottery winners, ninety-nine per cent of them were broke within three years of winning tens of millions of dollars. We must realise that to manage great wealth we need financial skills that we have practised and perfected on smaller portfolios. So, get practising now.

Habits form from repeated patterns of decisions and actions. Habits have the potential of becoming our character and determining our destinies. Let’s throw away the bad habits that can undermine our financial progress. Happy investing.