The Top 3 Mental Blocks to Personal Finance (and How to Get Past Them)

This is a guest post by John Wesley. He blogs about self improvement, motivation, and productivity at PickTheBrain.com (feed).

The transition from student to professional is a psychological challenge. For many people, it's the first time we experience complete financial independence. Although the basic principles of personal finance are simple, completely changing your mentality isn't. These are the top three mental blocks you'll need to overcome to position yourself for a prosperous future.

Mental Block#1: Personal Finance isn't important
As children, we never learn to manage money. Our parents take care of it and the schools and universities neglect the subject as well. Although children shouldn't have to worry about money, this lack of education causes problems when we reach adulthood.

When financial independence is thrust upon us, we cope with denial. For 6 months after I started working I let my earnings sit in a checking account; not because I didn't understand interest or because setting up a savings account is hard, but because I didn't feel the urgency to do something about it. I got past this mental block when I started to think long-term.

Personal finance is extremely important. The sooner you get started the better. How you manage your money will have an enormous impact on your quality of life over the next 40-60 years. You work hard, why not get the most out of you money and ensure that you'll be able to afford the lifestyle you want later in life?

Another important mental step is separating your parents income from your own. We get accustomed to the lifestyle our parents provide and think of the family wealth as our own. After becoming financially independent, it's easy to keep on living as if you're still under the parental umbrella when you're actually dirt poor.

Your parents have money — you don't. A lot of hard work and sacrifice went into building your family's wealth that you may not have noticed. It's important to recognize this and adjust your lifestyle accordingly.

Mental Block #2: Personal Finance is too complicated
For people without any financial education the vocabulary is intimidating. When you hear terms like 401k, Roth IRA, mutual fund, etc. — and don't understand what they mean — it's easy to get discouraged and think you'll never be financially competent. In truth, little technical knowledge is required for proficient personal finance. The key is to start with the basics and learn as you go.

Personal finance boils down to two concepts.

  • Frugality – Spending wisely
  • Investment – Using your savings to create positive returns

Sites like Get Rich Slowly, The Simple Dollar, and Wise Bread all provide advice for implementing these concepts. If you make a conscious effort to live frugally, invest your savings, and educate yourself about personal finance, you'll put yourself in a great position for the future.

Mental Block #3: Personal Finance is too difficult
Another mental block that stops people from embracing personal finance is the belief that it's too difficult. Either it takes too much time, too much knowledge, or too much initial capital to get started.

This simply isn't true. If you utilize direct deposit you can automatically spread your earnings over checking, savings, investment, and retirement accounts however you choose. After a small investment of time to get everything set up, you won't have to put any effort into managing your money.

Although you'll probably want to make adjustments from time to time to optimize your investments, automation allows you to dedicate as little of your time as you'd like to personal finance.

There is a lot of hype and complicated language associated with personal finance, but the essential aspects are simple. Anyone can learn to manage their money more effectively. If you haven't already, get started today. How can you afford not to?

For more about money at Pick the Brain, check out 7 Tips for Avoiding a Lifetime of Debt.

More about...Psychology

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Minimum Wage
Minimum Wage

Where I work, paychecks are released after 5 pm. My employer counts on floating paychecks over the weekend. No direct deposit available here!

MITBeta
MITBeta

I don’t have direct deposit either, but that doesn’t stop me from making it automatic. Vanguard debits my checking account twice a month to fund my wife’s and my Roth IRAs. ING debits my account to fund my slush funds. My bank sends out all my bills on time.

No problem.

Jon
Jon

I feel into #2 when I got my first full-time job after college. I was so intimidated by investment options regarding my 401k that I just refused to invest for a few months in fear I would just loose all the money.
I kicked myself for that later. I missed out on several months of employer matches. My dad finally convinced me to just get it set up, pick some funds, and the worry later about adjusting things.

guest
guest

How about #4, I have too many expenses and expectations to save any money.

Jack
Jack

my quality of life has suffered quite a bit ever since i started worrying about my finances. i only eat fast food now(typically mcdonald’s) and i never get to go out with friends anymore because it costs money. i also lost my girlfriend a month ago because she got tired of paying for our dates.

Aaron
Aaron

This article is very true. Those who do not take the time to understand their personal finances are missing out badly. It is hard to understand why some do not take advantage of investment plans such as IRA’s and 401K’s.

Jeffry
Jeffry

I agree. One must track expenses, and it is not too difficult to do so. Guys, if anyone needs a simple spreadsheet tool, I have a Free Home Budget Spreadsheet available for download.

Lynnae
Lynnae

You are so right. My husband and I both fell prey to mental block #1. We’re going to make sure our children don’t do the same. By the time they head off to college, they will know without a doubt that financial decisions you make in your 20s have a large impact on how you live when you’re in your 60s.

Matt
Matt

I’ve been guilty of falling into all three of your points at some point or another in my working life. The biggest problem is the fact that we live in a consumer society but no one teaches us about money!

Raj
Raj

I started taking my decisions when I was in college and in those days i used to save, i have spent like a king size my formula is I set aside what or what nots from what nots. if you get this you get all.
BIG NUTSHELL FOR FREE. Enjoy!

Lauren
Lauren

I was hoping I’d see #3 on this list. I think that’s is a huge misconception and give saving money a bad rap.

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