Financial Well-Being: What You Can (and Can’t) Control
What does sense of control have to do with your financial well-being? It probably won’t surprise you to learn that the majority of Americans feel stressed about money. According to a recent study by the APA, 72 percent of Americans reported feeling stressed about money at least some time in the prior month. Today, we’re discussing one of the likely contributors to this stress: our sense of control.
Understanding Control & Your Financial Well-Being
When it comes to our finances, there’s a mix of what we can control and what lies beyond our grasp. Understanding this dynamic is crucial for achieving financial success and maintaining a healthy mindset. At the heart of this lies the concept of locus of control (we’ll get into this in a minute).
By understanding what we can (and can’t) control, we can empower ourselves to make better financial decisions, navigate challenges with resilience, and ultimately shape our financial futures. Alright, let’s dive into the intricacies of locus of control and discover how it influences our relationship with money.
Locus of Control Explained
Time for a quick psychology lesson! Locus of control refers to the belief individuals hold regarding the extent to which they have control over the outcomes of their lives. This encompasses the perception of whether events and circumstances are primarily influenced by internal factors (internal locus of control). Or external factors (external locus of control).
Individuals with an internal locus of control tend to believe that their actions and choices directly shape their lives. In contrast, those with an external locus of control attribute outcomes to luck, fate, or external forces.
Internal Locus of Control
People with an internal locus of control tend to believe that they have a significant influence on the events and outcomes in their lives. When it comes to finances, they view themselves as being in control of their own financial destiny. If you have an internal locus of control, you’ll probably take responsibility for your financial decisions and actions.
This mindset allows you to recognize that your choices directly impact your financial outcomes. Individuals with this attitude will actively engage in financial planning, set realistic goals, and work diligently towards achieving them. This means you’re more likely to implement effective budgeting strategies, make wise spending decisions, and save and invest prudently for the future.
External Locus of Control
Conversely, individuals with an external locus of control perceive that external forces are largely responsible for the outcomes in their lives. They may view their successes or failures as results of luck, chance, or powerful external entities. In this case, things like the economy or other people. Those with an external locus of control may feel a lack of agency in their financial lives. This can lead them to take a passive approach to money management.
Individuals with an external locus of control may exhibit different financial behaviors that can hinder their financial success. If you blame external factors for your financial difficulties, you’ll be less likely to take proactive steps to improve your situation. This mindset can lead to a lack of financial planning, a disregard for budgeting, and greater difficulty in overcoming financial challenges.
Developing an Internal Locus of Control
Understanding the impact of locus of control on finances is essential because it highlights the significant role that your mindset and beliefs play in shaping financial behaviors and outcomes. The benefits of having an internal locus of control are pretty clear. Now, if you have an external locus of control you might be feeling a bit disappointed, but never fear!
You can develop an internal locus of control and shift your mindset. Developing an internal locus of control can empower individuals to take control of their financial lives, make informed decisions, and navigate challenges with resilience and determination.
Here’s what you can do to shift your mindset:
Identify Personal Strengths and Capabilities
Recognize your strengths, skills, and abilities related to financial management. Hey, reading this is already a step in the right direction! You have the power to make informed decisions and take actions that positively impact your financial well-being. Simply acknowledging that you have this power is key.
Take responsibility for financial decisions and outcomes
Embrace a mindset of accountability when it comes to your financial choices and outcomes. This isn’t always easy, but accepting that you are responsible for many aspects of your finances can help you on your way to better financial well-being. Understand that you have the power to make proactive decisions and adapt your financial behaviors to achieve desired results. Saving more and spending less, preparing for emergencies, and looking for better deals are just a few of the actions you can take. Hint: start by setting goals and making a plan.
Develop Resilience and Problem-Solving Skills:
Cultivate resilience and problem-solving skills to navigate financial challenges. I know, easier said than done. Avoid shaming yourself for any little financial misstep. Nobody expects you to be an expert. As long as you’re learning and playing an active role in your finances, then you’re off to a great start.
What You Can Control in Your Finances
Now, I know not everything is in your control when it comes to money. But by focusing on what you can control, you can establish a strong foundation for financial success. Managing your habits and continuously expanding your knowledge can help you take charge of your financial future and feel less stressed. Remember, the choices you make today can have a significant impact on your financial well-being in the long run.
Here are some things you do have control over:
Budgeting and Spending Decisions
Start by creating a budget that aligns with your income and financial goals. Monitor your spending habits, identify areas where you can cut back, and prioritize your expenses accordingly.
Saving and Investment Strategies
Set specific savings goals that work with your income, and regularly contribute to them. Depending on your income, expenses, etc., this may not be a ton, but that’s fine. Small progress is still progress. Explore different investment options that align with your risk tolerance and long-term objectives. Consistently saving and investing will allow you to build wealth and work towards financial security.
Take control of your debts by creating a repayment plan and sticking to it. Prioritize high-interest debts and consider debt consolidation or refinancing to reduce interest payments. Only use your credit card for expenses you can pay off before you accumulate debt.
What You Can’t Control in Your Finances
While you do have control over your financial behaviors, the truth is there are a lot of circumstances and factors that are out of your control. Recognizing the aspects of your finances that you can’t control is essential for maintaining a realistic perspective.
Inflation and Interest Rates
Inflation and interest rates are determined by macroeconomic factors and government policies. Unfortunately, you can’t single-handedly change this. But you can adapt your financial strategies to mitigate their impact. For example, you can diversify your investments to hedge against inflation or adjust your borrowing and lending decisions based on prevailing interest rates.
This is really up to economic conditions, geopolitical events, investor sentiment, etc. While you can’t control this, you can focus on long-term investment strategies, diversify your portfolio (yes it’s important enough to say it twice), and maintain a disciplined approach that aligns with your risk tolerance and financial goals.
Job Market Conditions
As you probably are already well aware, economic growth, technological advancements, and industry trends are in control of this. Unfortunately, this can impact your employment status, income, and career prospects. While you can’t control this directly, you can build your skills and network to increase your employability and navigate these challenges more effectively.
Unexpected Life Events
Health emergencies, natural disasters, and more can throw a wrench in your finances. It’s important to be prepared for things of these natures. Have an emergency fund and appropriate insurance coverage to help handle these situations and soften the financial blow.
Conclusion: Improving your Financial Well-Being
Understanding the concept of locus of control can help you see how your mindset guides your financial attitude and actions. While there will always be aspects of your finances that are out of your control, there are still actions you can take.
Instead of focusing on external factors beyond your influence, concentrate on managing the things you can control. By being prepared, adaptable, and proactive, you can navigate challenges more effectively and safeguard your financial well-being.