Apr 152008

Sometimes someone puts something in such a clear and simple way that you’re struck by the truth of it. For example:

Why People Don’t Manage Money

It has been my experience that people believe managing money will take away their freedom. They believe that managing their money will not allow them to be free and enjoy life to the fullest. I’ve been using the JARS for over a year and can honestly say that I feel I’m in a better position now to achieve financial freedom than I have been in years. In my opinion this is true freedom.

Stephen Martile on Managing Money

I’ve written about this sort of thing recently, where we feel that something is restrictive while it really provides structure. People want to feel in control of their money, not the other way around, which they may feel if they have to feel that they can’t spend a certain amount of money because of some plan. People in general don’t like to feel their freedom is being taken from them. This is where reactance theory comes from, which is when people feel their freedom to make a choice is being threatened.

So, if you’ve been procrastinating on setting up a system to manage your money, now is the time to make the mental flip from a restrictive mold to a tree which can grow leaves and more branches out, out, out forever! Now’s the time. Two good systems are the JARS system Martile is talking about, and a Zero-Based budget from Getting Finances Done.

If neither of those systems work for you, you can always setup an automatic transfer from whatever account you get paid into to a savings account of about 10% of your income. Then invest it from the savings account. This is the 2% of the actions you can take to managing your money that will give you probably 80-95% of the results. Do it. Now.

  2 Responses to “Why People Don’t Manage Their Money”

  1. Freedom might be part of it, but I think that Behavioral Economics would provide a better explanation. You allude to this when you suggest setting up automatic transfers, which BE studies have shown helps people make more rational and beneficial decisions with their money.

  2. […] talks about managing money better, for most people that means budgeting. Budgeting also tends to turn people off, and then they don’t even try to manage their money better and just let their finances be […]

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