A man is smiling, thinking about how he has improved his mental wellness through managing his money with a money tracking app like nav.it

What Does Psychology Have to Do With Money?

By Lizzie Letsou

What do money and psychology have in common? Actually, quite a lot.

In Morgan Housel’s book The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, the author explores how finance is related to human behavior.

Don’t feel like reading a 200-page book on psychology and money? No worries — I’m going to walk you through some of the biggest lessons from Housel’s book that you can use in your everyday life. On top of that, I’ll show you how you can use a money tracking app to help you improve your financial wellbeing. 

Money Mindset can help you analyze you wellness

No one’s crazy

The nav.it money tracking app has a community built in.
With our upgraded Community feed, it’s easier to increase your financial literacy, navigate your financial wellness, and connect with others making money moves.

In the first chapter of his book, Housel stresses the importance of understanding that financial decisions are seldom made “purely with a spreadsheet.” Instead, most people make financial decisions based on their own “unique view of the world, ego, pride, marketing, and odd incentives.”

The point Housel is making here is that finance is deeply personal.

Also, we can all easily fall into the trap of thinking  “my way or the highway.”

A quote that I think exemplifies this concept perfectly reads as follows: “Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.”

So how can we combat this egocentrism in order to make better money moves?

Thankfully, with Nav.it’s Community tab, it’s super easy to see how other people are spending their money. Additionally, you can keep up with other people’s “money mood,” which is a feature that tracks other people’s current attitude towards finance. 

Staying in touch with other people and their decisions surrounding money will allow you to see and relate to a world of financial possibilities. 

Nonetheless, it’s important to keep in mind that your financial priorities can and should be specific to you: your work-life balance, your hobbies, your splurge items.  Don’t fall into the trap of comparing yourself to others.

Your financial decisions are just as valid as anyone else’s. As Housel puts it: “no one’s crazy.”

Getting Wealthy v Staying Wealthy

Another important lesson that Housel discusses is knowing the difference between getting and staying wealthy. In this chapter, the author explains that while the process of “getting” money requires some element of risk and optimism, “keeping” money requires a completely different skillset. Staying wealthy requires “humility and fear.”

Housel eventually concludes: “There are a million ways to get wealthy … but there’s only one way to stay wealthy: some combination of frugality and paranoia.” But, what does this combination look like in more concrete terms?

With automated budgeting in your nav.it money app, budgeting has never been easier.
The nav.it money tracking app has automated and customizable budgeting.

Planning is an essential part of financial stability and longevity.

Additionally, accounting for the “plan not going according to plan” is equally important.

Housel refers to this phenomenon as “room for error,” or “margin of safety.” This “margin of safety” can manifest itself in many different ways, such as “a frugal budget, flexible thinking, and a loose timeline—anything that lets you live happily with a range of outcomes.”

Budgeting

Of these options listed by Housel, a frugal budget is probably the easiest to actually implement into your daily financial routine.

That’s because, with Nav.it, you can easily create a budget today to regulate your spending. You can even customize a category for your budget, depending on what area of spending you want to focus.

Creating a budget is simple and super effective. So, what are you waiting for? With Nav.it, we’ll keep you on track without restricting you to an unreasonable degree. 

Freedom 

Housel stresses the importance of financial freedom in his book. And for good reason. Being able to do “what you want, when you want, with who you want, for as long as you want” is, as Housel puts it, “priceless.” 

Obviously, this level of freedom is ideal. But we all have obligations that tie us down from time to time, such as family or work responsibilities. Nonetheless, that doesn’t mean we can’t still exert control over our own life and finances.

Improve your financial health with the nav.it money tracking app.
Improve your financial health with the nav.it money tracking app.

Having Control with an Emergency Fund

One easy way to take back control is to set up something called an emergency fund. An emergency fund is a bank account that you can use for large, unexpected expenses. 

Having a fund will ensure that any unexpected crises won’t derail your overall financial wellness. This will allow you to maintain control of your finances, and your life, while still spending whatever’s necessary to deal with a messy situation. Nav.it not only encourages you to set up this fund, but also makes it easy for you to check up on if you’re meeting your spending/saving goals each month.

The seduction of pessimism 

While frugality and rationality are key to maintaining good financial health, it’s also important to not be overly-conservative. We often restrict ourselves too much in the name of being “smart” and “money-conscious.” But it’s not such a bad thing to let your guard down once in a while — this can mean buying that luxury item you’ve had your eye on or even just treating yourself to a nice dinner. 

Housel points out that: “Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.” This narrative is what Housel dubs the “seduction of pessimism.” Don’t let yourself get sucked in!

Just as it is tempting to overspend, it can be equally tempting to over-restrict yourself. Allow yourself some wiggle room. After all, none of us are perfect and we all have to give ourselves a break from time to time.

Also, focus on all the good work you’ve already done to be a responsible spender! Rewarding yourself periodically and sparingly might just stop you from overindulging down the line. Nav.it preaches financial wellness above all else — and this wellness can come in many forms.

Being financially “well” does not just mean being frugal and responsible — it also means enjoying all the pleasures life has to offer!

Related Reads:

Free Downloadable Guide to Emergency Funds

Free Downloadable Guide to Budgeting

Financial Freedom

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