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Improve budget performance

7/13/2022

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Budgeting is often considered the same as a diet, as both consist of avoiding having the things you enjoy and cutting out items you want in life.  This can be difficult when you enjoy your lifestyle and struggle with the thought of living with less.  However usually with budgeting, you would consider it when life is financially challenging and you are looking for ways to cope.  Budgeting should not be a reactive process but proactive and one to be practiced all the time. 

To build wealth you would have to reduce expenses and increase income as well as make your money work for you through compounding.  Budgeting is a part of this process, where you are monitoring your money so you will make sure that a certain percentage is placed for wealth building and you have a healthy cashflow to pay expenses, have money to invest and money for emergencies.  How do you maintain the momentum to keep managing your money so you can maintain a healthy cashflow?  

Budgeting is structure.  Structure is a normal part of life such as keeping your calendar working for you.  As your calendar will help create structure so will budgeting.   There are many strategies for budgeting such as the zero budgeting where there is no money left and every cent is for a purpose including in an emergency account, and there are many with percentage such as 50/30/20 percent where 50% is for needs, 30% is for savings, investments including retirement and emergency fund and 20% is for you.  You can tweak the percentages to suit you. Another strategy is paying your small debts first so you feel successful in money management and then pay the bigger ones as you go, which is called snowballing. The strategy will depend in how you think, your momentum and past history.  If you have a history of struggles you may lack momentum and belief that you can do it.  Below is a list of cognitive bias that with awareness can help you stick to your budget and improve performance. 

Decision making
Think of the way you make decisions and how to maintain self-control.  You would need to wait for things and delay gratification when managing money.  Delaying gratification is exercising a part of your brain that would take getting used to.  It may be learning to ride the wave of urges and other unhelpful emotions that may cause you to spend on items you could live without. Create a positive reinforcement when waiting to enjoy your wealth.  When you have maintained your budget, reward yourself with an activity that is within your budget and enjoyable.  Decide on an amount you would reward yourself each week and enjoy staying in the black.  For example, you may decide to save $100 per week and reward yourself for 1 hour every Friday night pampering yourself. 

Shift perspective
Instead of focusing on the budget think about the cashflow coming in and building your wealth.  Cashflow is king and the thought can be the driving force in changing your habit.   Additionally focus on living the best life possible with what you have.  Feel grateful for what you have and reward your achievements.  Another perspective to shift is to realise that most people who have fancy cars and live an expensive lifestyle also have a mountain of bad debts.  Bad debts are ones you can do without and where the assets depreciate.  Good debts are ones where your assets appreciate. 

Money management can be a fun and rewarding experience because with enough financial literacy and support you can navigate the world a lot better, learn how to support yourself financially, become more independent and cope with life challenges such as leaving domestic violence or inflation. 

Disclaimer: 
The information provided above is not financial advice but intended for general information only.  If you need help with improving your financial literacy and support to improve your financial behaviour and mental health, contact us today.  For specific financial advice you can reach out to a financial planner.
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Financial resilience

6/25/2022

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Do you have the financial resilience to cope with the high inflation rates?  Do you have enough financial capability to cope with the changes? 

High inflation rate is a stage in life that we don't always think about.  It is life uncertainty that requires reviewing your finances and coping emotionally.   It is helpful to prepare rather than react and this can be a life lesson for the future.   

Often people are just surviving living pay cheque to pay cheque and believe they don't have enough savings to cope with the increased costs of living.  Often the belief can be true but finding ways to increase income and reduce spending can help.  Saving 10% of your income to pay yourself first and having an emergency fund is a helpful strategy to cope with this challenge. 

However emotional resilience and the ability to cope with distress can be helpful if you are feeling the financial pressure.  On the other hand knowing the financial strategies to help you pull through will also help.   This may include finding a side hustle, asking for  a raise, cutting down incidental costs you can live without for a while, asking adult children to help financially by paying board money to teach them life skills and looking for government incentives and comparing utility bills can help such as electricity bills to find cheaper options.  Often changing insurance companies will also help as many will provide discounts so you can become their customer. 

Emotional resilience is thinking differently to help cope.  For example, you may decide on what you can do to manage the situation such as the strategies I provided above, seek help from a financial counsellor or advisor or review your budget.  Financial counsellors can help advocate for you when in debt and financial advisors can help with reviewing your current situation and planning for the future.  Financial counselling is reactive while financial advisors are proactive. Financial therapy involves mental health counselling and financial literacy to help cope with the distress and learn strategies to cope.  Think about how you can cope rather than not coping, stay positive and hopeful, and write down a list of financial strategies to improve your situation. Coping with distress is also helpful.  Distress is not an easy emotion to sit with as it can be uncomfortable but I'm sure most of you have hopefully learned that strategy with the uncertainties Covid-19 created.  Body scanning where you focus on the emotion in your body and sit with it as well as mindfulness.  Mindfulness is about being aware of your feelings and thoughts but gently shifting your awareness to your senses such as what you hear, see, touch, taste and smell.  Mindfulness can be a way of life rather than a strategy and a practice that is helpful for everyone everyday.  

Find your own way to cope with distress and review your finances to manage these hard times and before you know it, you will adjust and life get easier to manage.  
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Disclaimer: 
The information provided above is not financial advice but intended for general information only.  If you need help with improving your financial literacy and support to improve your financial behaviour and mental health, contact us today.  For specific financial advice you can reach out to a financial planner.
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Consumerism - Why People Buy

6/14/2022

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There are many reasons why people buy which may include being seduced by marketing strategies, wanting to be part of a community which is usually encouraged through social media and programs, to increase points to have something else you want or to manage emotions which can also be called retail therapy .   

Understanding why people spend money can help manage the spending habits, which is especially helpful at a time during high inflation.   

Below are a few reasons why people buy: 

Cognitive bias - not thinking rationally when spending so checking in with your thoughts can be helpful.  Questions to ask yourself may include: what emotions are driving my thoughts?  Do I really need this or do I just want it?  What will my life be like if I didn't buy this item?   Can I wait and delay gratification?  

Encouraged by price - thinking this is a bargain and you don't want to miss out.  Bargains can create an emotion that will influence your spending behaviour and create the fear of missing out. 

Wanting to be part of a group through satisfaction of the ownership of product - re-evaluate the meaning of the group and if you can get that satisfaction elsewhere.  Is the group superficial and really healthy for you?  

Marketing tactics can include having your sensory needs met such as the right music, smell and feeling the product as you want to buy it (such as a cold drink from fridge), a shopping basket at the front of the store so you can spend more by filling it up and advertising that creates an expectation which is not real but makes you believe in it through the cognitive bias of expectancy.



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Compulsive Buying, Impulsive spending

5/26/2022

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Compulsive buying otherwise known as impulsive spending is a behaviour that can be influenced by mental health, personality and adverse childhood experiences.   People may spend impulsively because they feel it is comforting and distracted from negative experiences.  It can be considered similar to binge eating, where food is used to comfort.  

Impulsive spending occurs when the person spends spontaneously, struggles to manage their thoughts including behavioural biases and emotions and is seduced by marketing including social media.  Impulsive spending is usually not planned, sudden without the consideration of consequences.  The benefits is usually temporary with feelings of guilt and regret afterwards.  The person does not need the item but wants to have it without considering the negative consequences.  Positive consequences for impulsive spending behaviour may include a high feeling, comfort, improved identity and improved mood. 

While impulsive spending can have positive consequences they are short lives and overcome with negative consequences that can be damaging and lasting.  Negative consequences include problems with relationships, financial hardship, negative effects on mental health and low self-esteem.  However, the consequences may not be fully acknowledged as the thoughts of spending is pervasive. 

Impulsive spending is an external  coping strategy.  Therefore internal locus of control can manage the behaviour.  Cognitive behaviour therapy, and acceptance commitment therapy are treatment options available. Thinking about long-term goals, distress tolerance, reviewing your relationship with money, healing from childhood adversity, and reflecting on what you want to buy can help with impulsive spending.  Financial literacy and reviewing your budget can also help improve money management and spending behaviour.  Moreover, healthier coping strategies can also alleviate spending behaviour.  While these strategies sound easy, it can be challenging for the person to manage the behaviour, however with time, support, trust and patience it can be done. 

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Moving towards your financial goals

5/2/2022

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A financial goal can seem futile to reach and often competes with your life and needs as it is today.  However continuing to shift your awareness to your goals and setting your goals appropriately can help. 

You have a financial goal which may include saving for a mortgage, improving your emergency fund or buying a car.  However, your financial goal may seem too far away, especially if it is to increase your retirement fund.  So, how do you increase your motivation to save?  Saving may mean reducing spending on things you enjoy such as eating takeaway, reducing subscriptions and reducing costs on entertainment.  Your thoughts may stop you from reducing costs as it may seem that your quality of life today is more important that the future. Another unhelpful thought may be that you probably won't live beyond tomorrow or 65 so why bother.  

Sitting with your negative unhelpful thoughts is a strategy you can use.  Also being aware of your emotions while you apply your strategy to reach your goals will also help.   While it can be easier to say rather than do, shifting your awareness back to your goals when you have the urge or thought to spend is important.  

Chunk your big goal into smaller ones.  Give yourself a reward when you reach each smaller goal.  As long as there reward is not another expense. Prepare a vision board of your big goal to keep reflecting and remembering on what you need.  Remind yourself why you set that goal up. Focus on your needs first before what you want to prioritise.  Sometimes you may need support to go through these processes and talk about why it is so difficult.  If you need more help to manage your emotions, motivation and thoughts in a safe non-judgemental environment, then we can help through financial therapy sessions.  



Disclaimer: 
The information provided above is not financial advice but intended for general information only.  If you need help with improving your financial literacy and support to improve your financial behaviour and mental health, contact us today.  For specific financial advice you can reach out to a financial planner.

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Mental accounting to manage money

4/17/2022

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Mental accounting is a psychological framework that can be used to manage money.  Mental accounting can be used physically by keeping seperate bank accounts, money jars,  or mentally by thinking about the separate accounts.  For example you may have one bank account but in your mind you plan to save 10% and the rest on incidental costs and bills.  

Mental accounting also involves the opening of an account and closure and can help with money management as it is a form of self-control. You put money in and receive mental closure but spending it.  You know how much is to go in a particular account and what for.  It can also help you be aware of your finances as the money is contained in certain accounts. 

Furthermore there are different schools of thought on how many accounts to hold your money.  They range from three to six and include one for bills, one for holidays, one for an emergency, another for investment and another for giving to others such as charity.  People use this practice to teach children about money management and for adults to improve self-control and manage debt.  Mental accounting can also be used for investors or financial planners to compartmentalise money during diversification for an investment strategy such as placing money into Australian and international shares, property, cash and fixed interest, bonds and managed funds.  It can also be used when investing in shares to assist with diversification further by splitting money into categories of a variety of companies such as utility, REITS, mining and healthcare.

Give mental accounting a go to help with money management and self-control. 

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Problem Gambling

4/17/2022

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Gambling addiction affects people of any gender and any age and in any socioeconomic status.  Gambling is a behaviour that involves a decision to eventually win a prize after many attempts of spending money that may belong to the gambler or not.  

Gambling can be a form of impaired decision-making and can also a result from a negative life experience.  Gambling addiction is now known as gambling disorder in the Diagnostic and Statistical Manual, fifth edition (DSM-5) under the non-substance behavioural addiction section.   Symptoms need to result in clinical impairment of distress within the following 12 month period and include four or more of the criteria listed in the manual.  The criteria includes but not limited to lies to hid the problem, feeling restless when trying to cut gambling and needing to gamble to increase money or achieve a desired level of  excitement. 

Some people gamble to express their anger, have a negative relationship with money as they were told money was more important than them or want a sense of belonging. Risk factors also include a lack of family cohesion, loneliness, financial hardship and using gambling to mitigate it, impulsive personality where there is a lack of self control to manage the urge, high sensation-seeking behaviour, and a lack of coping strategies to manage life challenges. Therefore, there are many complex factors to consider when helping someone with gambling addiction.   

Coping strategies to manage problem gambling include counselling to work through past trauma, experimenting with healthy coping strategies, improving financial literacy to learn about and appreciate healthy money management including planning for your financial future, improving relationships around you to develop a healthy sense of belonging, improving what money means for you as well as facing your problems and working it out.   

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Personality and MONEY MANAGEMENT

1/3/2022

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Personality can drive financial decision making and behaviour in finance. As a financial planner, understanding a client's personality can assist in the client discovery process.  As a client, understanding your own personality can help you re-evaluate your risk profile, learn about your strength and weakness in money management and how to connect with the advisor.  One perspective to consider when measuring personality is the Five Factor Model.  The Five Factor Model  includes openness to experience, conscientiousness, neuroticism, extraversion and agreeableness.  A person can be within the spectrum of high and low of each factor.  The Five Factor Model is useful as it can transcend cultures and languages and therefore support a diverse range of clients.  It is also a valid and reliable self-report measure.

Personality tests will measure individual differences that can help understand how people think and behave.  Theory can influence how personality is developed.  For example, there is the biological theory where hormones or chemicals in the brain influences personality, then there are genes and the psychosocial theory where attachment and social relationships develop personality.   There is also the self-regulation perspective where prior intentions influence behaviour and cognitions drive personality.  While there are many theories it makes sense that each one has merit and suggests that personality can be stable when considering the genes but also change when considering psychosocial and self-regulation theory. 

A financial planner can understand a client's behaviour by using a personality test such as the Five Factor Model otherwise known as the Revised NEO Personality Inventory.  For example, a client who is agreeable may not express his or her preferences as they want to be liked and don't want to offend others.  The client may walk away with advice that does not meet their needs.   To mitigate this problem, the planner can ask the client more questions to ascertain a deeper understanding of the client's needs. A client who is conscientious may be overconfident in their capacity to manage finance or may believe they have a high tolerance to risk.   If a client scores high in neuroticism it may mean that they are overly anxious.  You would then provide more information to help the client feel comfortable with the advice so they can make the right decision.  You may also provide enough information in the Statement of Advice, which in turn will enable to client to hire you as they will feel supported.  A limited Statement of Advice may not be sufficient. If a client scores high in openness to experience which correlates to intellect, they will ask more questions and may even know more than other clients.  If you don't allow the client to ask the questions and become irritated, you may lose their business. However, a client who is high in agreeableness won't ask questions as they will worry that they are bothering you or may agree with everything you say while deep down inside are really not happy with the advice but will have trouble speaking up.  However, that doesn't mean they are low in conscientiousness. They may be knowledgeable but want to be polite and not ask too many questions.  A client who is low in agreeableness may complain a lot, become upset and seem rude as they are not overly concerned about being polite.  If you knew early enough you can work with it but adjusting how you communicate. A personality test can allow you to gain enough insight to manage your advise that is supportive and in the best interest of your client.   

A person who is high in conscientiousness can learn that their strength is to seek knowledge, but if they are also high in neuroticism can learn how to manage their anxiety in money management and risk.  If they are high in extraversion in the excitement-seeking facet, they may need to manage how they invest as it can influence decision making to seeking excitement rather than using a rational objective approach. 

In summary, a personality test such as the valid and reliable NEO Personality Test can give you a deeper insight into providing supportive advice to your clients and enable you to keep them longer by ensuring they feel understood.  It can also provide those who want to manage their own money insight into their own behaviour to make better decisions.  
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Financial PLANNING WEEK

10/5/2021

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Australia is soon entering a new year of ‘living with COVID’ and it’s promising to see a number of Australians are currently seeking advice from a professional financial planner or through a digital platform. Financial Planning Week is the perfect time for you to think ahead and create a plan to improve your financial wellbeing – now and into the future.
#FPWeek2021

You can find a financial planner here www.fpa.com.au
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Saving for Retirement and Delayed Gratification

9/25/2021

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Superannuation is mandated for people who are employed, yet for people who are self-employed they have a choice to place a certain percentage of their income into superannuation.  Under the Superannuation Guarantee percentage, the employer must place 10% of the employee's income into a superannuation fund.  To increase security in retirement a person may decide to increase their retirement fund through investment strategies such as property development, shares, bonds and savings account. 

It is never too late to save for retirement.  However you will need to set healthy goals and scale back spending to put extra money into a diversified investment strategy.  Delayed gratification is required to be able to put extra money into your retirement plan which may be challenging for some people. 

Delayed gratification means waiting for what you want later.  In order to save more you need to spend less.  You may see people who are wealthy or better still who look wealthy.  There are people who have a lot of stuff including bad debt.  Delaying gratification requires you not to look at what other people have but what you know is best to do for yourself.   Delaying gratification also requires self-regulation strategies.  You need to manage your anxiety of not having, your thoughts of wanting things such as an expensive holiday or feelings of jealousy of others. You may do this by determining your goals for retirement, what you value, and then work backwards on how to reach the goals. 

Researchers Hastings and Mitchell (2020) identified that financial literacy can improve people's motivation to save for retirement as the largest factor is a lack of understanding about finances and the economy that causes an inability to delay gratification for retirement planning. 

Time discounting or temporal discounting is another strategy where you benefit more if you wait.  If you prime yourself through visualisation of the benefits you will receive in the future, you will increase your changes of delaying gratification and a secure retirement.  For example, you visualise your holidays, spending valuable time doing hobbies you always wanted to do and relaxing leisure time during retirement. The visualization allows you to realise that the long-term savings is beneficial and more important than short term gains.  You de-emphasise immediate gain, and emphasise future gain. 

In summary, write down what you want your life to look like when you retire, visualise it often by thinking about it and what it would feel like, and then you won't mind spending less to save more for retirement. On the other hand, spend time to learn about finances and the economy to improve your ability to have a more secure retirement through a diversified investment strategy and healthy budgeting. 
  
Cheng, Ying-Yao, Paichi Pat Shein, and Wen-Bin Chiou. “Escaping the Impulse to Immediate Gratification: The Prospect Concept Promotes a Future-Oriented Mindset, Prompting an Inclination Towards Delayed Gratification.” The British journal of psychology 103.1 (2012): 129–141. Web.

Hastings, J., and Mitchell, O.S. “How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors.” Journal of pension economics & finance 19.1 (2020): 1–20. Web.

Book IV: Saving and investing - chapter 3: Saving for retirement (2009). . Hoboken: John Wiley & Sons, Inc. Retrieved from https://login.ezproxy.lib.rmit.edu.au/login?url=https://www-proquest-com.ezproxy.lib.rmit.edu.au/books/book-iv-saving-investing-chapter-3-retirement/docview/189246727/se-2?accountid=13552
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  • Home
  • About
  • How we work
  • Services
    • Financial Coaching - Improve Relationship with Money
    • Financial Therapy >
      • Mental Health and Financial Literacy
    • Financial Consulting
    • Budget, Cash Flow Management and Forecasting
    • Mental Health
  • Blog
  • Fees and Payment
  • Contact