Why Personal Finance is Dependent on Your Behaviour

Personal finance is a crucial topic that everyone should be interested in because it controls a large aspect of our daily lives. Human spending, investment, and acquisition of funds cannot be involved since it has not just a direct effect on an individual life but that of society.

In recent times, discoveries have shown that human beings are influenced by their behaviour and this includes the way they handle personal finance.

You may wonder; Why is personal finance dependent on your behaviour?

Continue reading this article to find an answer to the above question.

As we dive in, let us understand what personal finance is.

What is Personal Finance?

Personal finance encompasses all activities that are directed to your savings, investment decisions, spending, money management, earnings, etc. The study of personal finance tends to do all activities ranging from income, expenditure, and total returns of an individual.

Everyone survives according to the strength of their to some they are richer than others, and they have a strong personal finance background through behavioural conduct and education. An individual who wants to enjoy a good financial life should study personal finance as this will help him manage his inflow and outflow of money effectively.

One of the major factors that affect personal finance is the behaviour of the individual. Why? Continue reading.

Why Personal Finance is Dependent on Behaviour

Personal finance is dependent on behaviour because savings and investment decisions are a result of habits and character which makes up  An individual’s behaviour. A person who values money will carefully select his financial sources and measure his outflow. While an individual who doesn’t value money will do the direct opposite.

In some cases, people are more careful spending money and resources that they worked hard for than those they didn’t work for. This is due to their behaviour towards what they labour for and what they didn’t labour for.

The reason why some people are richer than others is because of their personal finance behaviour. Critical thinkers and implementers tend to make better financial decisions than their counterparts. An individual personal finance behaviour can be built to make better decisions through proper guidance by those who are financially sound. 

This posits that a good financial behaviour habit can be improved or changed if the individual refines his intentions and outlook towards money and its management.

People say money has a spirit that must be studied to succeed, they are pointing to the psychology of money which has a direct linkage with how behaviour affects personal finance.

 Understanding the movement or inflow and outflow of money from an individual purse is referred to as the psychology of money. 

When an individual pays little or no attenttion to the psychology of money, they will practice wrong personal finance behaviour that will affect their financial life.

What are some of these behaviours that can reduce personal finance?

Let’s discuss that below.

Behaviours That Can Reduce Your Making the wrong financial decisions can reduce your finances

The following are behaviours that can reduce your finance:

• Bad Spending habit

One behaviour that can reduce your finances is bad spending habits. A person who spends above his earnings and resources will have no savings or investment and will end up with no money after spending everything they have on things that can be termed unnecessary and they may become poor, depressed, and a threat. 

If you spend recklessly your financial health will suffer, and your savings and investment power will reduce.

• Lack Of Financial Education

Finance is a broad topic that should be studied consistently. Some become scholars studying finance and all its branches through higher education to train otters and make better financial education, an individual doesn’t have to become a scholar as there are so many ways to become financially literate. 

Regrettably, some people ignore financial education and use money without caution. Failure to gain financial education is one behaviour that reduces personal finance.

• Bad giving habit

Giving is a good behaviour but a bad giving habit can reduce personal finance. A person who gives out his resources without saving or investing properly might end up with nothing and may later regret the action. Some people cannot naturally control how much they should give, where to give from, and who to give which have a direct effect on their finances.

• Wrong Saving habit

One important aspect of personal finance is savings using various mediums such as banks, savings apps, etc. can reduce your finances. Saving more than you earn can also be harmful as it can result in debt and a burden on your finances.

• Irresponsibleness

An irresponsible person financially can be said to be someone who lacks financial education, spends recklessly, does not save, and has low personal finance. Someone who displays irresponsible financial behaviour will have reduced personal finance.

Behaviours That Can Improve Personal Finance

Good personal finance behaviour is important as it will help improve your financial life.

The following are behaviours that can improve your finance:

• Develop a good spending habit

Spending your money and resources on your needs and essentials more than what your wants or desires are endless will help you develop good financial behaviour that will improve your finances.

As much as possible, avoid situations that will result in unplanned spending, have a budget, keep spending records, and set spending limits to control your spending habits and watch you improve.

• Understand the psychology of money

Studying and understanding how money works will help you monitor your behaviour toward finance. Take every available opportunity to become financially literate and applying your knowledge will help you attain success financially. Someone who studies the psychology of money will take reasonable financial risks, invest wisely, spend and save based on budget and control his inflow and outflow of money efficiently, and will develop healthy financial behaviour for improved personal finance.

• Right Savings Habit

Save your money and resources intentionally and in a place or measures that you cannot use unnecessarily. You should have an average amount that you should save at specific times from your earnings and profits and avoid using such funds unplanned. When you develop the right savings habit, you will have an improved financial life.

• Passive income

A wise and financially educated person will not depend on one source of income especially if their method of earning is not guaranteed. Diversification of income is one way to improve personal finance and earning passive income is one way to do so.

• Invest wisely

Investing your money and resources is one way of multiplying your financial wealth leading to improved personal finance. Developing the habit of investing wisely will bring great returns and increase your financial power.

• Develop the right money mindset.

People have different mindsets. Some have a scarcity mindset which pushes them to save every penny they have and spend less on themselves. The danger in a scarcity mindset is that they do not invest their money nor spend it and this has a direct effect on their finances and life. Some people also possess the abundance mindset and they ensure they have money in abundance, this makes them invest wisely, make good money decisions, save rightly, spend rightly, and improve their financial life and behaviour.

Developing the right money mindset is a behaviour that can help improve your finances. Also read: Personal Bankruptcy: 9 easy tips to fight it off.

• Take financial security measures

It is one thing to be financially buoyant and another to be financially secure, money and resources can be lost in minutes if proper security measures are not taken.

You can insure your money and resources, save in a trusted bank, take red risks, etc.

Why is it Important To Study Personal Finance?

1. Studying personal finance will help you understand the psychology of money and make the right money decisions.
2. Studying personal finance will help you gain exposure to the financial sector and how you can benefit and improve your financial life.
3. Studying personal finance will help you develop good savings habits and improve your finances.
4. Studying personal finance will help you to make Right Investment Decisions.

Final Words

A healthy financial life depends greatly on our behaviours because everything we say or do is influenced by our habits. People’s level of financial success is different from each other because of our behavioural makeup which influences our preferences, desires, wants, needs, and risk factors. Mr. A may have the ability to take more financial risk than Mr. B because of the way he behaves towards money.

One good thing is that one can intentionally train their minds and acquire financial education through paid and free mediums and this can build their behaviour and improve their finances.

The importance of building one’s behaviour towards finance has been discussed in this article and suggestions that can help you develop behaviours that can improve personal finance has been given well.

In conclusion, behaviour is dependent on behaviour because the actions of every individual are guided by their behaviour.

I hope through this article, you will develop good financial behaviour and maintain healthy personal finance.