Behavior, Not Knowledge, is Essential to Financial Success

Which would you rather get - P3,000 in three days, or P5,000 in three months?

Think about it for a while.

If you answered the P3,000, this usually means you are financially impulsive, since you’d be turning down an interest rate that is much better than what banks and most investments offer.

In a study conducted by researchers from the University College of London, nearly half of their respondents preferred the lower (but sooner) sum - and that these people also showed impulsiveness in other areas of their life. From the article (emphasis mine):

“…researchers suggest money savings or financial behaviors are linked to a set of other personal behaviors, rather than personal knowledge and experience with money.

…[they] discovered impulsive behaviors such as overeating, smoking and infidelity are associated with financial gullibility.”

This means that even if you know a lot about money, investing, and business, it doesn’t guarantee that you’ll be financially secure. What guarantees your financial success is your behavior. If you are consciously planning for the future and spend time evaluating your impulsive desires, then you have better chances of being financially successful - even better chances than someone who had formal training in finances, but doesn’t exhibit those behaviors. Perhaps this is why even the smartest people we know make stupid decisions regarding their money.

How do we use this information to our advantage?

1. Acknowledge that you don’t have to know everything to start fixing your finances. One of the obstacles that most people face when it comes to fixing their finances is inaction. They think “Oh I have to read more about saving before I can actually save” or “I need to know more tips before I can start”. Being good with money is not always about facts - it’s also about behavior. While we need to study some things - especially when investing - we don’t need to know much to get started.
2. Realize that managing money well is a habit. It’s something you have to cultivate and practice regularly. There is no one-off solution, magical budgeting program, or miracle investment that will save you. It takes regular, continuous work.
3. Know that changing impulsive financial behavior may mean changing other aspects of your life as well. My mother was such an impulsive spender, but her impulsive behavior wasn’t limited to money. She was that way about almost everything. From her business endeavors to her anger. For those who are truly impulsive, it may be a more difficult journey to get your finances together - but it doesn’t mean you shouldn’t try.

If impulsive spending and investing was one of your problems, take a look at your past behavior and see how you’ve changed since then. How have these changes affected your finances? How do you feel about the research I quoted above?

Image by cobrasoft from sxc.hu

Frugality Tip: Stop Watching TV

Seriously.

Here’s the thing, I used to watch TV idly as a way to relax. I’d turn it on and watch whatever was mildly interesting. Since I had a cable TV subscription, something was always on.

Then, I noticed something about myself. I would watch a show I didn’t even like. Even reruns. I called this “mindless entertainment”. After all, I was only unwinding. But the way TV sucks you in to watch one show after another, I found that I watched at least 3 hours each night. This amounted to at least 15 hours of TV per weekday. Even more hours were spent watching TV during weekends.

I realized that I had a problem when I was watching an episode of The OC for the third time. And I actually hated the show!

If I wanted to be more productive and have more free time, clearly I had to cut back on TV and find other ways to relax.

Now, I still have a TV but I rarely use it. When I was cutting back on expenses, I canceled my cable TV subscription. I have cable TV again because of someone who lives with me, but when she leaves I’m going to have it disconnected again.

Because I don’t really watch TV. And you know what, I think I owe at least some part of my financial stability to that. Here’s why:

• If you watch less TV you won’t be as prone to tempting ads. Don’t get me wrong, everyone is prone to being convinced by advertising, but at least by cutting back on TV you have less exposure. Also, ads take up around 1/4 of a show’s air time, and life’s too short to be spent watching random ads.
• You can do something more productive or restful for your downtime. This includes bonding with friends and family, reading, working on a side business, managing your money, or even sleeping.
• Foreign shows, news, and other forms of entertainment can be found for free online. You just need to know where to look. No need to pay a premium for subscriptions, and no need to wait a certain time/day for your favorite show. In other words, you get to choose carefully which shows you’ll invest your time in.

One disadvantage is that my friends give me crap about how I don’t know Kim Chiu, or who the latest matinee idol is, or how I’m a “loser” for not watching Pinoy Big Brother. But come on - as far as disadvantages go, who cares? I’m never the one who complains about not having enough time for sleep/hobbies/family.

Try it. Disconnect your cable TV subscription, if you have it. Turn off the TV set. You’ll be surprised at what you could accomplish. Why not add that to your list of goals for the new year?

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Day#20: Maximize customer loyalty programs.

This is Day #20 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:

Today’s Task: Maximize customer loyalty programs.

If you frequent particular malls, grocery stores, and other establishments, chances are you have some kind of customer loyalty card (or were at least offered one). Some examples of these programs include the Laking National Card, Mercury Drug’s Suki Card, and the SM Advantage Card. If you already have a customer loyalty card or plan on signing up for one, it helps to learn about the following things:

• Any partner establishments which will allow you to earn and redeem points,
• Expiration dates for membership and unredeemed points,
• Discounts and freebies you get with your loyalty card, and
• The availability of any additional opt-in services. (For example, the SM Advantage card allows you to opt-in for life insurance with 20 of your points.)

Many customer loyalty programs have their own web site, so a simple Google search can pull up the information you need. If this isn’t the case, the next time you’re visiting the establishment, request a brochure or flyer that can give you more info.

Of course, doing this only makes sense if you frequently go to that establishment and its affiliates. Otherwise, it’s going to be a waste of time. For example, it makes sense for me to get an SM Advantage card because I frequently go to SaveMore grocery, Makro, and Ace Hardware. If I only visit these establishments once or twice a year, it’s not worth the hassle.

Are you a member of any customer loyalty programs? How do you take advantage of it?

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