The world is recovering from a pandemic that may have rearranged our holistic understanding of how best to manage personal finances, especially when it comes to preparing for immediate plans and the future. For a South African, your challenges go slightly deeper; high inflation and a sluggish economy impacted by ongoing power cuts.
Couple this with the fact that the various levels of income South Africans earn are mostly used to service debt, and this is indicative that most South Africans do not have the ability to meet or prepare for their financial goals in life.
According to Claire Klassen, Consumer Financial Education Specialist at Momentum Metropolitan, our personal relationships with money are deeply influenced by our psychological tendencies and behaviours. From an early age, we are programmed to respond in certain ways to financial challenges, and it is important to engage in introspection to break the cycle of debt and poor financial decision-making and to positively change our attitudes and behaviours towards money.
Because of this, South Africans must develop a sharp focus on improving financial behaviour that will help disrupt the cycle of debt and poor financial decision-making prevalent in society. The natural outcome of this pattern is self-inducing financial problems, which means South Africa’s general psychology of finance could be classified as tense and leading to poor financial decision-making, Klassen believes.
So, no time is better than the present to get a grip on personal finances and start building to maintain a healthy personality for your wallet/pocket.
Building to maintain a healthy personality for your wallet/pocket, in this case, will mean putting aside the numbers for a moment, and being clear on why you do the things you do with your money; How are you spending your salary? Why spend frivolously or why hoard money? Are you present, in the moment, or do you absently make decisions with financial consequences?
“Understanding the psychology underlying our personal relationship with money is crucial for making positive changes in our attitudes and behaviours,” says Klassen. “This requires introspection, particularly when we find ourselves repeatedly making poor financial decisions that lead to over-indebtedness. By reflecting on our past actions and thought patterns, we can identify the underlying beliefs and emotions that drive our financial behaviour and make conscious efforts to change them.”
Stressing the need for ongoing self-reflection on one’s relationship with money, Klassen suggests regularly checking your credit report or printing out a detailed bank statement from the previous month to assess your spending habits – We must honestly analyse the effects of our relationship with money, including our spending habits.
This practical exercise can reveal uncomfortable truths about wasting money on non-essential or impulsive purchases. By confronting these patterns head-on, you can gain a clearer understanding of your financial priorities and make informed decisions about how to allocate your resources.
“Fostering self-awareness through self-introspection can have a positive impact on our financial decision-making,” she adds. “By reflecting on our past financial experiences, we can gain insights into what led to negative outcomes and learn from them.”
“This can involve examining whether those outcomes were a result of our own poor financial decisions or due to external factors beyond our control, such as macroeconomic trends. By doing so, we can become better equipped to make informed financial choices and feel more confident in our ability to navigate financial challenges.”
According to Klassen, these are seven tips for making better financial choices:
Budget and adjust regularly: Create a monthly budget and regularly adjust it according to personal life events. This will help you maintain a healthy personality for your wallet/pocket.
Track your expenses: Understand how much your lifestyle costs and ensure that you are not spending more than you earn. If you are, consider reducing your lifestyle costs, finding a higher-paying job, or finding ways to earn extra money.
Avoid impulse purchases: Be mindful of impulsive purchases and recognise the effect of subliminal advertising that may subconsciously influence your spending patterns.
Prioritise bills and savings: When you have extra money, prioritise paying your bills first. With the money left over, consider depositing it into a separate savings account.
Prepare for economic fluctuations: If you receive an annual increase in your salary, mentally prepare for anticipated price hikes and economic fluctuations that can impact personal income and spending.
Plan for the future: Consider how you can use your income to grow yourself and reach your financial goals. Also, plan by preparing for retirement or protecting your business or family from financial loss.
Seek professional advice: If you are struggling to manage your finances, seek professional advice from a registered financial adviser.
Klassen concludes that the question to ask for peace of mind would be, how do we prepare for retirement or protect our business or family from financial loss? Answering these questions will reduce aspects within our control, causing financial stress, as being ill-prepared for these challenges affects us psychologically.
