Introduction:

Prudent Financial Planning without the discussion of human psychology doesn’t paint a complete picture. Everyone, every day, physically or mere thoughts, work-on or think about personal finances. Household budgeting or self-budgeting, there’s always give and take from your personal account. Every time you are looking at your online banking account and see the balance depletion that also depletes your ego (Ego-depletion). Is that really making you feel good or doing good for your mental health? In this article I discuss about different aspects of financial planning and their interpretation from human psychological perspective.

Focus Points:

1. Are You Really Saving? The Illusion of Financial Planning:

Despite rigorous adherence to popular saving strategies like the 50/30/20 rule, many people find themselves dipping back into their savings. This raises a crucial question: Are we truly saving, or just creating an illusion of financial security while struggling to meet our immediate needs?

2. Budget Planning vs. Life’s Unpredictability:

While monthly budgeting provides mental satisfaction, it often fails to account for life’s unpredictable events. This disconnect leads to stress and frustration, highlighting the need for flexible financial planning that can better adapt to unexpected expenses and changes.

3. The Debt Trap’s Impact on Mental Health:

Rising credit card debts and high-interest loans place a significant burden on households, trapping many in a cycle of debt repayment that impacts their mental well-being. Prioritizing the elimination of high-interest debts can pave the way for financial stability and improved mental health.

4. Falling into Spending Traps: The Power of the Law of Attraction:

Online shopping algorithms exploit our interest in products, trapping us into unnecessary purchases. By recognizing this spending trap and focusing on the negatives of impulsive buying, individuals can better control their financial habits and avoid wasting money on non-essential items.

5. Reevaluating Financial Goals for True Happiness:

Setting and achieving financial goals is linked to greater happiness, but unrealistic or overly ambitious goals can lead to disappointment. Crafting balanced, achievable financial plans with short- and medium-term objectives can provide a more reliable path to financial success and personal fulfillment.

Saving Strategy and Illusion of Saving:

Everyone is thinking about different saving strategies. With all the financial planning strategies either 80/20 rule or 50/30/20 rule or some other strategy, the mind is somehow busy with the thinking of personal finance management or in other terms net worth. What is my net worth going to be in next 6-months or after five years? This question always creates stress for most of the people. My question to the readers would be: Are you really saving? Yes, you probably have 2 different accounts, and you are saving in your savings account but are you running out of the funds in your current account and again tapping in the funds of savings account? Isn’t it just the illusion of saving.

Budget Planning or Planning fallacy?

Every single month that comes and goes in most of the peoples’ lives: Sitting and budgeting the monthly finances, trying to minimize the unexpected, setting fixed costs for food, education, healthcare, and vacation. Creating all the little pots in the hope of having a happy well-balanced life. Off course this gives us mental satisfaction but is the life predictable. We usually overestimate the accuracy of doing our budget planning while underestimating the predictability of life events that we might encounter hence it effects our mental health. Little flexibility is always a good idea. Do not go hard on yourself. Would you like to know more about the Financial Tips that will Change the way you think? Read HERE!

Debt Free Life and Mental Well-Being:

Debt is a word that gives me stress. With al the financial instruments ever created by human beings, debt is in many cases especially for household purposes or for personal purposes is the worst of all. Let’s assume for financing a new car is the most obvious yet most dangerous instrument. With ever rising credit card debt around the world and high interest percentage on the credit card loans, it is becoming extremely difficult for most of the population to run their households. Most of the income people earn is being paid for the credit card debt (High Interest Percentage) and the income for the month falls short hence the cycle keeps on running. It is advisable to the readers to get rid of the credit card debt and then other debts with high interest rates. Do not set yourself up for the setback in the future for the happiness of the present.

Spending Traps and Law of attraction:

You are visiting a website, and you see an advertisement of the product that might or might not be useful for you. You click on the ad, and you see the specifications and reviews, now according to your input (Your Click), it appears on your social media profile or during surfing the web. Because of the appearance of that product, as availability heuristic states, consciously or unconsciously it stays in your mind, and it increases the chances of you buying that product. That is a typical trap that many of us fall in and spend money on useless things. You can stop that urge of buying if you immediately think about the negatives: how that product will decrease your bank balance or how it is of least importance to you. More on Media Influence on Human Psychology HERE!

Are Financial Goals really any Achievement:

According to the research conducted by human pschologists, the people who sets the goals in their early age and later work towards to achieve their goals are happier than the people who had a hard luck achieving their goals. It also translates for the financial goals that a person, couple, or a family set for themselves. It is important to set your financial goals wisely while keeping in mind the above-mentioned suggestions. Do not go hard on yourselves. Make a financial plan that is easy for you from the very beginning. Setting up short to medium term financial goals are a good way to estimate the success as well as, if necessary, make the changes accordingly.

Conclusion:

Personal finance management is an intricate dance between maintaining financial stability and preserving mental well-being. While strategies such as saving, budgeting, avoiding debt and setting financial goals are essential, it is crucial to approach these with a balance of realism and flexibility. The illusion of saving, the pitfalls of rigid budget planning, the stress induced by debt, the temptations of spending and the pressures of achieving financial goals can all take a toll on one’s mental health. Therefore, adopting a mindful and adaptable approach to financial planning is key. By setting realistic and achievable financial goals, staying flexible with budget plans, avoiding high-interest debts and being cautious of impulse spending, we can achieve a healthier balance between financial security and mental well-being. Remember, the ultimate goal is not just financial achievement but also sustaining a peaceful and stress-free life.

FAQ:

1. What is Financial Planning?

Financial Planning is a power set that people follow to make their lives less predictable. Budgeting, saving, investing in different assets are all the different parts of a Financial Planning set. Anyone can use these parts or pieces to plan a sustainable and stable financial future.

2. What are the steps involved in the financial planning process or what is comprehensive financial planning?

The process starts by defining the clear goals that a person wants to achieve. After setting the goals, it is important to create a strategic plan of budgeting, saving and investing. The plan requires monitoring in order to stay on or ahead of your goals. If the plan requres changing, modify it and continue it untill you achieve the required results. If you are successful with your strategy, that will be your personal financial plan and you can automate it to achieve your short term or long term goals.

3. What is ego depletion in human psychology?

Ego depletion is a psychological proces, that states, when the persons’ cognitive faculties are drained due to excessive thinking or stress, a person is more receptive to riskier or less well thought options that will be less rational.

4. What is planning fallacy?

When an organization or an individual overestimates its capacity about planning any project or task, they can be biased in their approach and the time or resources predicted by that organization or individual can be unreasonable. You can overestimate your saving potential or budgeting potential and not able to achieve your goals.