Dear Happy Investor, I grew up with four sisters. I was the middle child. We had, and still have, a happy family with an entrepreneurial dad and a loving mother. Although we were not very rich (how could you be with five children?), we were certainly not poo. My sisters and I grew up in the same environment. Yet, we have totally different behavior towards money. For instance, I try to accumulate and invest as much as I can. Meanwhile, my sisters try to spend as much as they can. Why are we so different in our money behavior? Well, it turns out there are certain conditions for smart money behavior.
In this article, I will explain how you can simply grow smart money behaviors. It is all about making conscious choices. Making these minor daily choices will add up and lead to exponential results in the long term. This will really change your life for the better.
Let us begin!
Three conditions for smart money behavior: yes, you can!
Smart money behavior starts with motivation: a burning desire!
Tips for being smart with money
Learn how to adopt smart money behaviors
Daily choices for how to be smart with money
Create an environment that will support your smart money behavior
Doing smart things with money is all about behavior. Being smart with money is all about your Mindset. While the latter is more difficult, anyone can learn smart money behavior. For some, it works to start with transforming their Mindset about money. For others, it works better to start with behavior, and gradually transforming their Mindset because they see proof of their capabilities.
When speaking of behavioral change, science brings us three essential conditions:
- Motivation – you must desire it!
- Knowledge and capabilities – you must be able
- Environment – it should support your desired behavior and not counteract
Personally, I believe Mindset should be part of this as well. If you firmly believe that you are someone that has smart money behaviors, then you will find ways to do so. Therefore, motivation (which can emerge from Mindset), is a crucial ingredient in your journey to more financial freedom. If you really desire something, you will find a way to make it happen. This is true for developing the necessary knowledge and capabilities, as in changing your environment so that it will support your goals.
So how to start? Below you will find very concrete tips for adopting smart money behavior by using the three conditions mentioned above.
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Whether you may or not may believe in yourself. If you have the right motivation, that is if you really desire it, then you will be successful no matter what. It is however a crucial condition. You must really want it. It is a burning desire and you will not feel complete if not achieved. Of course, this motivation emerges from a bigger why. A why that indicates achieving financial freedom.
Why do you want to adopt smart money behavior?
If it is to have more money, then why do you want more money?
If it is about happiness, then when would you be really happy?
Out of experience, I can ensure you that “once you've got the money, it is not about the money”. So your goal, your ambition and your why should be bigger than just money.
Start with this: right down on a piece of paper what your biggest life ambition is. When would you be truly happy? How does this situation look like? And how does it feel?
The above will guide you. It is essential to ask yourself these big questions in life. Make it meaningful!
Now back to smart money behavior that will lead us to financial freedom (which could be a part of your biggest ambition, although it should not be the only part). Here are some concrete examples to boost your motivation and Mindset about being smart with money.
- Be satisfied with all you have, yet not too satisfied about your income – Stretch yourself to earn more money, which you can use to invest rather than buying stuff.
- Don't be materialistic, instead focus on yourself and personal growth – Buying stuff will not make you sustainable happier. Knowing yourself, appreciating yourself, and growing yourself does.
- Don't waste money – If you are intending to buy something, then ask yourself: ‘do I really need this?'. Perhaps 8 out of 10 purchases will be eliminated if you give an honest answer to this question.
- Adopt a Happy Investors Mindset – Realize that money makes more money. Invest your money and let it work for you, so you can enjoy freedom.
- Time = money – Time is way more valuable than money. You can always earn more money, but your time is limited. Never trade your time for things below your value. You are valuable, so if someone (or yourself) wants to let you work for money then they should pay the right amount.
- Time = money, part 2 – If you have to spend one-hour driving to save yourself 10 dollars, then that is a waste of time. Pay 10 dollars extra and get one hour of your life back! However, use this time wisely. This could be with family or working on your own business (side hustle)
- Believe – Believe in yourself. Believe that it is possible to become financially free or even – independent. If you truly believe, you will find a way to make it happen. Many people have become financially free while they are no smarter than you. So why couldn't you?
Motivation is the engine. Now you also need the right (brain) tools to become smart with money. Learn how to adapt smart money behaviors. Good financial choices can only be made with the right knowledge and capabilities.
This is my advice for learning about smart money behavior:
- Understand money – Money is a medium of exchange. You can use it to buy stuff, but you can also use it to buy joy, self-development, and even freedom of labor. If you make a choice today to let money work for you, your entire life will change. If you see money as a tool to work for you, in the long run, you will never have to work for money anymore.
- Control your emotions – we are emotional beings, but never let emotions control your life or your money. Ask yourself in what kind of emotional states you are spending more money than you wanted to. In many cases, you will spend money to avoid pain, regret, or becoming socially excluded. If your friends all have very expensive cars, does this mean you should buy one too? Hell no!
- Think Long-Term – if you invest instead of spending money, then in 10 years from now you will have a very different financial situation. 20 years from now you will become financially free and after 30 years you will never work again. And this could even be faster depending on how much you invest. Think long-term (this will help you control your emotions as well).
- Pay Yourself First! – is a timeless principle from ‘Rich Dad, Poor Dad'. It is both a mindset as a system for saving more money. Pay yourself first encompasses that when you receive a salary, you will first pay yourself with the amount of money needed for your investment goals. By doing so, you will ensure that you always stick to your monthly investment. It will also keep you focused on earning more money, and spending less. Because if you pay yourself first and after that, you can't pay your bills, well then you need to either earn more money or pay less. That is my advice for you. Use these timeless principles to become smart with money. Use them as a guideline in your daily life.
The next step is to make smart money behaviors a habit. In essence, forming a habit will be done by consistently repeating the choices leading to certain actions.
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I can write a whole book about daily choices that will lead to financial independence. For this article, we will stick to only three daily choices to helping you being smart with money. In essence, it is all about becoming (more) conscious about your spending pattern.
Important note: below we are talking about daily choices for identifying and reducing your money spending behavior. But please keep in mind that is more crucial to focus on earning more money, rather than saving. You can only save money until a certain basic level of comfort. You still need to live and being able to have fun during this process. But the sky is the limit for earning money. And it is more fun as well. So focus on that!
Still, you do need to be aware of your spending pattern so that you can avoid wasting money and being smart with saving it. Still, you do need to be aware of your spending pattern so that you can avoid wasting money and being smart with saving it.
1. Why do you spend money? Be smart by setting financial goals
The first choice for how to be smart with money is by reviewing your money behavior. Why do you spend money? For what purpose? It is essential to find out what you want in life. And I'm not talking about a fancy car or an expensive house. I'm talking about what you want to do if money wasn't an issue. How would you like to spend your time?
Find your why. It is common advice and yet many people neglect it.
First, you should find out what you want, and why you want this. In most cases, you will need some money to realize those dreams. How much money do you need for it? And within which timeframe?
A strong daily choice is to set financial goals and reviewing them every day. Make your financial goal very specific. You can use the following sentence for this: “within [X] years I will have [Y] money”. Then break down this long-term financial goal into smaller pieces.
“within [X] years I will have [Y] money”.
To achieve this I will have “[Y] money in year 2022”, “[Y] money in year 2023”, “[Y] money in year 2024”, et cetera.
Setting financial goals and reviewing them every day will form a strong sense of urgency and purpose about attaining more money. Yet be careful that it isn't all about the money. Don't let it control your life.
Setting financial goals is good. However, even more important is creating a system that will help you achieve it. The right system will lead to habit-forming, and that will change your life for good!
2. Building smart money behaviors with a system
If you want to learn more about building a system for habit creation, I strongly recommend the book ‘Atomic Habits'. When speaking of smart money behaviors, I think the following daily actions will provide you a solid system to achieve your financial goals:
- Review your monthly expenses and income, every single day – Ask yourself ‘how can I improve this?'.
- Work on that one thing you need to do for either saving or earning more Repeat this every single day – I'm not talking about your daily work. I'm talking about a single action that will deliver you extra money or more savings.
That's all. Only two daily actions you have to take. Of course, to make this work you have to do it consistently. You can't skip a day. You can't quit during the process. If you want to succeed, these actions should be repeated every single day until you have reached your (financial) goals.
3. Powerful questions to avoid big expenses
If you want to be smart with money, you should ask yourself smart questions. The best saving is to not spend money at all. For example, it won't make an impact if you save 20 dollars a month on your insurance, but it will make a major impact if you don't buy a new, expensive car of 40.000 dollars.
Here are two very powerful questions you should ask yourself before buying:
- Do I really need this?
- How many hours should I work for it, and do I really want that?
The first question will make you conscious of the necessity. In many cases, there is no need for a 4th pair of shoes, a new couch that is more “trending” or even a new car to boost your “ego”. Stop wasting money on things that are not necessary! Appreciate what you have.
Of course, sometimes it is necessary to buy. Then the second question enters our brain. If I need to buy something, then I will calculate how many hours of work it requires to attain that product or service. For example, if you earn 20 dollars an hour after taxes then you will need to work a full day to buy a product of 160 dollars (assuming an 8-hours working day).
In many cases, I do not feel as willing to work a full day just to acquire some product. But if it is necessary, you will need to buy something right. So then the next step is to evaluate all alternatives based on price and quality. If the 160 dollar product will have high quality and last for 10 years, then it is a better choice than a 80 dollar product that will last for 2 years.
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Adopting smart money behaviors can be quite challenging if it is not in your nature. With all tips from above, I do not doubt that you can become smart with money. However, we all need some help in difficult situations. To ensure that, you can work on creating an environment that will support your smart money behavior.
Here are some tips:
- Make your why and financial goals visual with a mood board – print it out so you can look at it every morning and evening
- Use technology to daily track your expenses and income
- Involve your spouse in creating mutual financial goals – you will need to have support from your husband/wife during difficult times. Also, doing it together is way more fun and creates a common purpose
- Tell your family about your financial goals – yes this might be strange, but they must understand you. Don't feel ashamed just for the fact you desire financial freedom. Perhaps you might even inspire others to achieve the same
- Friends and social pressure – this one is even more difficult than family. However, if you have true friends they will understand and even support your smart money behavior. They will relieve social pressure to spend a lot of money. We all have experienced those nights where we drunk way too much tequila… The next day we wake up with not only a million(s) fewer brain cells but also an empty wallet.
Create an environment that will support your smart money behavior!