Are You A Reactive Or A Proactive Money Manager?

Contributed Post, October 10, 2018

If you’ve ever been to a job interview, you were probably asked about how proactive you are as a person. Of course, the right answer to this question is “very,” but when it comes to personal finances, that isn’t always the case.

One of the problems that we have as a species is our unwillingness to consume negative information. This aspect of our psyche turns up over and over again in studies on what we choose to consume and what we don’t.

Take the years running up to the financial crisis of 2008. If you look at a plot of the value of the stock market and the number a people logging in to see what their investments are worth, you begin to see a fascinating pattern. When the stock market rises, more people sign in to see their money go up. But when the stock market is falling, fewer people do. Rationally, you would think that it should be the other way around since if the value of your investments were falling, you’d need to change them. But this isn’t what happens.

As humans, we have an inbuilt bias to want to consume positive news and avoid the negative. We are much more likely to think of ourselves in a positive light, and that includes our finances.

Credit: Indiablooms

But our finances aren’t always positive. In fact, statistically speaking, they are usually fairly bad.

Being proactive about one’s finances is essential. One of the most important first steps is to get a complete credit check done and to make sure that it is accurate. Services like Lexington Law reviews can do just this. Often credit reports are inaccurate or based on faulty information, but there is not much individuals can do to improve the information available to rating agencies. Ensuring that this information is accurate is an essential first step.

Being proactive also means setting clear goals for how you want your money to work for you. Sure, you can work paycheck to paycheck, but living this way essentially turns you into a slave. It never allows you to build up the capital you need to generate your own secondary income.

Living with integrity means behaving in a way that is consistent with your values. So if you value financial freedom, that means setting aside money to grow in an investment account every month. There’s no need to jump in at the deep end and try to save 50 per cent of your income. Just a small amount every month will compound over the years to generate vast wealth.

Finally, you might want to keep a handwritten money journal. Although there are digital alternatives out there, writing by hand is an excellent way to make what you’re spending feel real. Now that we live in a world of apps, just another money management app may feel a little dissociating. Write down what you’ve spent money on, how you felt when you did it, and what you saved on any given day. Review your journal regularly to remind yourself of your real goals and priorities.