Most people only look at their finances and try and take corrective actions when things are bad. These people know they need to change their ways immediately or something bad will happen such as bankruptcy. However, these people have no true purpose for what they are doing (other than to save money to stay out of bankruptcy and or having their car repossessed or such ) even when they do try and buckle down and become frugal, and so they usually fail and or continue to struggle. Often, these people become more mindful of their spending, but never really change the root of their habits, and thus never correcting the underlying problem, because they have false motivations.
In the personal finance blogosphere, advice is everywhere. For the most part, personal finance writers (including myself) simply regurgitate what everyone else is speaking, rarely is anything new or unique contributed. This is why it’s so critical for us to understand what motivates us. Once we can find out what makes us happy, not others, we can start to build sound motivations that will help us increase our chances for success.
Enter Daniel Pink, a fascinating author who analyzes what makes people become and stay motivated. Check out this excellent video below where Dan draws upon 50 years of research in behavioral science to come to the conclusion that money does not motivate people with regards to performance when the task involved requires using your brain. Now, Dan Pink is certainly focused on using this information for managers trying to better motivate their employees, and the research shows that money doesn’t motivate creative thinking. But I think we can use this information in a different manner to better understand how to motivate ourselves to manage our own personal finances.
The video illustrates our need to figure out what makes us happy, as that’s what truly motivates us, not money alone. As mentioned in the video, there are three factors that lead to better performance; Autonomy, Mastery, and Purpose.
Autonomy speaks to the desire for ourselves to be self directed. With regards to personal finance, this means instead of counting on others for advice, get out there and learn this stuff on your own. Read, learn, become engaged. I think the biggest problem here is people are fearful of the unknown. It’s really not that difficult, if you’re wanting to change your situation once and for all, you need knowledge, not to count on others for that knowledge. That’s not to say you should consult other professionals, just that you should be able to at least speak to them and determine if what they’re telling you makes sense. It’s about owning your situation, and not passing that off onto others to make sense of.
With regards to Mastery and personal finance, it comes down to breaking down the barriers to saving and investing and understanding what it will take you to take control of your own finances. Once you begin breaking down the barriers, and learning, you will likely find it to be fun and rewarding.
Instead of saying, I’m doing this so I won’t be broke when I get old, you will see whatever purpose you’ve made for yourself. You don’t want to work until you’re 80 or 90, you would rather have a house on a lake with boats and toys that you can enjoy by 35. So what will it take to get there? For you, maybe it’s a dream to travel and see the world, or to help others, or whatever. Once you clearly define what your purpose is specifically, you will see real goals to work towards, not general meaningless goals.
Through Dan Pink’s work, I’ve come to realize Personal finance is so much more than sticking to a budget, saving and investing, it’s about setting goals with a purpose behind them to you and seeing them out through completion. It’s about not only taking control of your finances, but taking control of your life. When you’re spending is out of control, your life is likely out of control too. Coming up with your own reasons to take control of your finances and finding a purpose in being frugal will help you become more motivated than dangling meaningless dollars as a reward to yourself. More importantly, you’re much more likely to see this to completion through creative and critical thinking, and taking control of your life.