Everyone has financial goals, whether they know it or not. We all want to do something that we can’t currently. Generally, the pathway to doing that something involves money – thus a financial goal is born. In spite of this, only 63% of Americans perceive themselves as having a financial goal, and the majority of people aren’t confident in their ability to achieve the goals they set. So why don’t we achieve our financial goals?
The Problem
Achieving your goals is tough. The human brain is wired to seek comfort and pleasure while minimizing pain. That’s why it is so easy to put off going to the gym or cleaning the house. Watching an entire season of Bridgerton in one sitting instead sounds much better… It’s not you, it’s your brain. Most of our financial goals require us to change our behavior in some way. Changing our behaviour or habits requires energy and focus. With so many other things to focus on in your life, it becomes even more challenging to change, even if you really want to. Balancing short-term actions and long-term consequences is where the psychology of personal finance gets interesting.
Financial Goal Setting
One of the first steps towards achieving a financial goal is defining it appropriately. There are many frameworks you can follow in terms of goal setting such as SMART, or BSQ. However, the important thing isn’t so much the framework that you use, just that you are using a framework! Check out our Goal Setting 101 guide for full details on how to think about setting financial goals.
Psychology of Achieving Your Financial Goals
Achieving goals is a task that many people struggle with, and there are myriad approaches to making it easier. One scientifically proven method to make achieving a goal easier is having an accountability partner. This makes you 66% more likely to achieve a goal. If you have an accountability partner and check in regularly with that person, you become 95% more likely to achieve your goal. We know from research that social accountability is a very powerful motivator, so applying this to finances is a sensible way to improve goal achievement.
What About All The Personal Finance Apps Out There Already?
Apps like Mint and Personal Capital are designed to provide you with the tools to understand your financial position. In theory, this enables you to track your progress towards goals. Sure, there are issues with accounts not remaining logged in properly or transactions being miscategorized… But in general, they do a great job of providing snapshots of your position, and showing changes over time. Unfortunately, they tend to focus exclusively on the provision of information, as opposed to enabling you to act on that information to achieve your goals. As such, you can easily see that you aren’t in the financial situation you want to be in! But you don’t have the most important tools to push yourself to achieve your financial goals.
The Taboo of Discussing Personal Finance
However, in many cultures around the US and worldwide, it’s considered taboo to discuss your personal finances with those around you. This comes down to the oft-ignored emotional aspect of finance. Whether it’s judgement of others, jealousy, pride or something else, the state of one’s finances generally has a strong connection to several emotions all at once. Discussing your finances means making yourself vulnerable and exposing these emotions to whomever you are talking to.
If That’s The Case, How Do We Fix It?
Problem: We Don’t Like Talking About Finance
The major problem that this presents is that millions and millions of us make the same mistakes with our money generation after generation. We don’t learn from our mistakes because we are loathe to discuss them with others and make ourselves look and feel foolish.
Solution Part 1: Normalising Conversation
At Ostrich, we feel that it is vital that we encourage conversations about personal finance. These facilitate learning from one another and avoiding the same mistakes over and over again. We believe it should be normal to share the errors you’ve made, and the successes you’ve enjoyed, in your own personal finances. The internet has enabled us to connect with an unprecedented number of people and to access almost all the knowledge in the world. By harnessing this power to share personal experiences we can all learn from, we can dramatically improve our ability to succeed in personal finances. We are working hard to enable this in the Ostrich app.
Solution Part 2: Facilitating Accountability
To maximize the effect of information sharing, we need to pair it with accountability. This will enable you to use the experience of others and the knowledge gained from them to set and achieve your own goals. As it becomes more normal to discuss your finances with others, it becomes easier to recruit accountability partners to hold you to the goals you have. At the moment, there are Facebook groups and Subreddits in which you can seek out like-minded personal finance pioneers, or maybe you set up a group text with some friends or family.
In the Ostrich app, we are building an ecosystem focused on accountability. This ecosystem will enable you to work together with family and friends if you so choose. We can also help you seek out others in similar situations with similar goals to work towards. Our community, founded with the intention of enabling achievement of financial goals, is changing the way society approaches its finances.
Bonus Solution: Gamification
The final piece of the puzzle from a psychological standpoint is gamification. Scientifically proven to aid in the completion of goals, but also specifically financial goals, gamification can act as a strong motivator. However, when combined with social accountability, gamification represents an incredibly powerful tool that we can apply to personal finance.
As seen in myriad fitness apps, notably Strava and Peloton to name but two, competing with both friends and strangers serves as a strong motivator. This pushes you to achieve at a higher level than you would alone. At Ostrich, we are bringing social gamification to personal finance. This enables our members to achieve their goals at a higher level than ever before.
Conclusion
In the context of personal finance, psychological factors are often portrayed as an opponent to progress. However, there are two sides to this coin. By harnessing the power of psychology, you are more likely to achieve your financial goals.
