Internal and external locus of control has been identified as a mediating factor to financial behaviour and financial wellbeing. People who have an external locus of control believe that the environment influences their achievements or challenges and submit to fate or destiny. People who have an internal locus of control believe that their thoughts and actions influence their achievements or challenges and when they do have challenges they find a way to overcome them. Moreover, research has found that millionaires often have an internal locus of control as they are always looking for ways to increase wealth no matter what the environmental factors are.
As a result, to increase financial wellbeing and improve financial behaviour, you need to increase your internal locus of control and decrease your external locus of control. Additionally, financial attitude, financial literacy and financial belief of capacity to manage finances has an indirect effect on financial wellbeing. Research suggests that people who have higher levels of financial literacy are able to manage their money better, however in a world packed with information on websites, podcasts and other resources we still have many people with unhealthy financial behaviours and financial unwellness. An internal locus of control will increase an individual's capacity to use the information they know about finance for their own benefit and have a healthier relationship with money. They will take accountability and responsibility for their behaviour rather than believe the economy or other environmental factors is the cause of their financial challenges. In summary to increase your financial wellbeing take control of your finances no matter what the environmental factors are. Increase financial literacy and be proactive by using the information to improve your financial situation.
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Strategic planning will ensure you achieve your financial goals. It is recommended when deciding on goals to start with the end in mind and work backwards. Some people's financial goals may be unhealthy such as hoarders or people who are big spenders so reviewing goals with a specialist can help ensure it is in your best interest. Starting with the end in mind includes thinking about who you will be with, what purpose will it achieve, the emotional outcome and implications, and what stage in life you will be in such as retirement. You may then decide to share your goals with someone who has a healthy financial mindset to consider another perspective. Lastly when thinking about financial goals ensure it is realistic. A financial cash flow projection by starting with the present and looking forward into your finances will make sure you can achieve your goals and it is realistic. A financial projection can also help you identify if you need extra income. For example, include inflation each year to make sure it is in real terms. Thinking about your financial goals and doing a financial projection will help you take control of your finances and make better financial decisions.
Use SMART goals for success. SMART goals will help you be more specific and think in realistic terms. SMART stands for Specific, Measurable, Actionable, Realistic, and Time bound. For example, I want to save $80,000 for a house to purchase in 2 years time. I would then ensure the goal is realistic and detailed in my financial projection and researched properties and the loan requirements. Tell people close to you about your goals so you are held accountable and then plan how you will save for your goal to action it. If you have more than one goal, then priorities. Some goals can wait and others need to be actioned immediately. For example, a goal to save for a boat may have to wait by practicing delayed gratification while paying off a mortgage that will need to be actioned immediately. You may need to work extra to pay for the boat but your financial plan will help guide your decision making. Lastly monitor your progress by placing review dates in your diary to ensure you stick to your goals. Life has a way of throwing challenges and surprises which may mean you will need to adjust your financial plans and time to reach your goals. Enjoy goal setting to improve your financial wellbeing. |
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February 2024
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