Why is Personal Finance Dependent Upon Your Behavior?

Personal Finance Series – Behavior

TLDR Summary

Personal finances are a very personal journey that heavily depend on your emotions which impacts your behaviours:

• There’s no set winning path to fixing your finances, it’s personal to your circumstances and personal stress factors in life
• Establish a zero-based budget in order to provide the insight necessary to target your behavioral changes; focus on solving 1 problem at a time
• Dont be afraid: whether its spending money to make life easier or “failing” these are necessary lessons in your journey

Personal Finance is…Personal

Looking to make changes in your personal finance is going to be largely based on a behavioural adjustment you need to make in your life. To start, what we’ve often seen is people really don’t know where their biggest spend is, because they don’t budget. We don’t say it enough, but you need a budget in order to gain the insights necessary to make behavioural changes. We personally recommend starting with a zero-based budget.

The “Ugly” truth is that personal finance is just that – personal. Sometimes, the standard guideline just doesn’t work for your circumstances, and thinking that you HAVE TO follow “X path to success” will result in a disservice towards yourself, locking you up emotionally from being able to progress. The numbers on a budget is just a simple (but necessary) data set to give you insight – the real work is what you then do with that information.

For example, some folks may say or realize they eat out too often, but not exactly how much they’re spending on it every month. When we first started working on our personal finances, we knew we ate out often – but we didn’t realize we were literally spending more then $1000/month on 2 people eating out, and no - as recent college grads at the time with debt above our heads, we were definitely not making enough money to afford that and subsequently found ourselves in a constant cycle of trying to pay off higher and higher credit card bills. While the standard advice to people in this situation is often to just say “Stop eating out” our advice, based on our experience working down from $1000 eat out to $0, is a bit different. We start on behavior.

Understanding the Psychology Behind Our Money Decisions

Research in behavioral psychology reveals fascinating insights about why we make certain financial choices. Understanding these patterns can help us overcome common financial barriers and build better habits.

The concept of “present bias,” studied by economists O’Donoghue and Rabin, reveals why we often choose immediate gratification over long-term benefits. This explains why it’s so hard to save for retirement or build an emergency fund when we could spend that money on something enjoyable right now. Our brains are naturally wired to prioritize immediate rewards over future benefits. Recognizing this tendency helps explain why automated savings can be so effective - they remove the constant battle between our present and future selves.

But there’s good news in behavioral research too. Studies on “implementation intentions” show that creating specific “if-then” plans dramatically increases our chances of achieving goals. Instead of saying “I’ll try to save more,” research shows we’re much more likely to succeed if we create specific triggers: “When I get paid on Friday, I’ll immediately transfer $200 to savings.” This explains why zero-based budgeting and automatic transfers often succeed where general good intentions fail.

Understanding these psychological patterns isn’t about judging ourselves for past financial decisions. Instead, it’s about recognizing that many of our financial struggles are rooted in very normal human tendencies. When we understand these patterns, we can build systems and habits that work with our psychology rather than against it.

Understanding Emotional Triggers

Financial behavior typically follows a predictable pattern: trigger → emotion → action. Understanding this cycle is crucial for changing financial habits. Research shows that most problematic spending occurs in response to emotional triggers rather than genuine needs.

Common financial triggers include:

• Work stress leading to “retail therapy”
• Social pressure resulting in status-based spending
• Financial anxiety causing avoidance behaviors
• Success emotions triggering reward spending

The key to managing these triggers isn’t eliminating emotions – it’s understanding them and creating healthier response patterns. Studies indicate that people who can identify their financial triggers are 65% more likely to maintain positive money habits long-term.

Here’s how we go about it:

Many put the cart before the horse, telling you what to do and what not to do without fully understanding your situation and what led you to be in that position. Instead, we like to get personal and analyze the spending bucket we’re trying to reduce. In the example of eating out, we would start with asking the question “why are we eating out so often?” If you’re like us, we can’t even remember what we had for breakfast this morning, let alone remember every event of us eating out and the cause. This is where having a zero-based budget comes in handy - with the budget in front of us we would use that to help us analyze and review: do we eat out more on certain days or for certain meals, is it randomized events, is it constant small hits for breakfast, on the go or late dinners, was it one bigger hit we didn’t plan accordingly for? Each response would be a different behavioural root we have to spend time understanding in order to figure out how to improve the situation. (If you havn’t read my blog on creating you first budget, check it out here.)

• I.e. If you have a $10 hit every morning for breakfast on the go, the solution path for you is a very different to, it was your best friends 30th blow out party and you spent too much on the night out.

Let’s move forward with the culprit being the $10 breakfast on the go, that’s an average cost of $280/person/month on eating out, just for breakfast, and let’s say that’s a problem for you. We would first ask, what’s your mornings like? Are they hectic, are you stressed about work, are you staying up to get some “me” time and waking up late as a result? Whats your work situation, what’s your kitchen situation, is it accessible for you to cook, do you know how to cook, is it a stressful experience for you? Once you understand your pitfalls better, you can start to think about solutions.

Our big lesson here: don’t be afraid to spend money to make your life easier.

This seems counterintuitive, spending MORE money when you’re trying to save money – but it’s important for your emotions, which impact your behavior, which impacts how much money you spend. To continue with our above example, say the issue is you rent a room in a house and you don’t have kitchen rights, or your house mates are difficult and the kitchen is a stress point for you so you avoid it, or work is stressful and you don’t have time to cook. All understandable situations - each should start you on some discussions for long term goals to improve the overarching problem, but your first focus will need to be short term problem solving. Whats a solution that works to provide you immediate emotional relief to help you start saving money right now? Can it be investing in a rice cooker or Instapot to have in your room to avoid/not need the kitchen? Can it be a mini-microwave/fridge/pantry shelf that you can warm up frozen or shelf stable foods in to save time? Keep in mind, these investments don’t have to be brand new, latest and greatest stuff, Facebook marketplace and thrift stores can be your friends here. Also note, our goal isn’t targeting a huge health improvement either.

For us, eating out was about the overall experience. We didn’t want to be home, I personally wanted some aspect of being served something delicious after working all day, and my husband just needed a way to have a bit of fun. We found our solution as we started going on more walks outside, and I started making more “quick bad foods” from home – burgers, fried foods, you name it. I let go of the mentality that cooking from home automatically meant only healthy foods. This leads me to mention:

Watchout: Don’t try to solve too many things at once.

Behavioral changes are extremely hard. Focus on 1 problem at a time, execute a solution until its an established working habit, and then move forward. In my example, I was trying to solve for healthy eating and reducing our eat out budget and found myself often frustrated, leading to setbacks in my behavior (I.e back to eating out). Eventually my husband asked me “why don’t we just make burgers from home, it’s still better then eating out isnt it?” He helped push me to realize I was trying to solve for two problems: healthy eating and reducing expenses. When we’re making changes in our life, we want to fix everything about life while we’re at it, instead of focusing on baby steps and building from it. If you find yourself burned out or overwhelmed during your changes, take a step back and reflect on how many problems your working on and whether you’ve strayed from your initial goal.

Lastly, don’t be afraid to “fail” (I.E LEARN).

Maybe the instapot didn’t work out, maybe you didn’t like that brand of packaged food, maybe your first attempts at cooking weren’t the best. Keep alternating, keep trying new things – you will eventually find what works for you. We often label something as failing, which then impacts our behaviours negatively, when in reality whats happening is we are learning something that was necessary for us to be able to progress towards our goal.

Peaceful Mindful Pocket is here to help you organize and better understand what your finances are doing and what they are capable of, in a way thats easy for you to review and understand. We have also found it incredibly important to us personally, to set you up with a free coaching session with myself or my awesome husband when you sign up, so that we can answer any questions you have. Whether it’s about how to start setting up your budget to best suit your needs, or helping talk through some of these behavioural adjustments, we are here to help and provide value to you on your journey.

We hope this blog was valuable to you! If you’re having a difficult time in your financial journey and need to run some thoughts with someone, feel free to reach out to me on Calendly to book a free consultation to see how I can help - click here.

Feel free to also comment any questions or concerns you have!