Check your money habits

By Lanre Oyetade

Most financial advisers are rightly of the opinion that most people fail to see that their problem is not necessarily their income (or lack of it), but rather their money habits.
Savings and investments are not necessarily functions of your earnings but rather functions of habits just like other habit-driven issues like smoking.

The ‘science’ of habit formation
Habit formation is much like walking along a weedy path. With more walks on the path, the path becomes ‘cleaner’ and easier to tread on, such that if you were to walk that same direction, you would most probably choose the already well-treaded path. This is exactly the psychology behind habit formation, including habits relating to money: A path once passed is easier passed in subsequent times. Once a thing is done, it becomes easier to do it the next time.

Dr. Sidney N. Bremer, in his book, Successful Achievement, aptly puts it this way – the chains of habit are too weak to be felt until they are too strong to be broken.
So it is best to form and inculcate a habit of savings and investment early such that it would become part and parcel of your person with the passage of time, for the benefits are indeed immense while the pains are short-lived.

Categories of ‘investors’
In this insight, it may be interesting to look into two of the categories of ‘investors’ that Robert Kiyosaki enumerates in his Cashflow Quadrant viz:

  • Level 0 investors and Level 1 investors.

According to Kiyosaki, Level 0 investors are those with no money to invest. They either spend everything they make or spend more than they make. There are many ‘rich’ people who would fall into this category because they spend as much, or more than they make. Unfortunately, says Kiyosaki, this zero level is where about 50 per cent of the adult population would be categorized.

The other level is what he tags Level 1 ‘investors’ or borrowers. This is an entirely interesting group and will reveal to us now not to manage money:
These people solve financial problems by borrowing money; often they even invest with borrowed money. They live their financial lives with their heads in the sand like an Ostrich, hoping that everything will work out. While “they may have a few assets, the reality is that their level of debt is simply too high. For the most part, they are not conscious about money and their spending habits.”

Anything they own of value has debt attached to it. The words “low down, easy monthly payment” always draw their attention. They often purchase depreciating ‘toys’ such as boats, swimming pools, vacations and cars with those words in mind.

They list these depreciating toys as assets and go back to the bank for another loan and wonder why they get turned down.

Shopping is their favourite form of exercise. They buy things they don’t need saying words like “If I don’t buy it now, I may never find it again at such a great price” or “I want the kids to have what I never had”. They spend everything they make and then some. They are known as consumers. Shop owners and car dealers love these people. If they don’t have the money, they borrow it.

When asked what their problem is, they will say that they just don’t make enough money. They think more money will solve the problem. Little do most of them realize that the money they earn today seemed like a fortune or dream to them just yesterday. But today, even though they have achieved their dream income, it still is not enough.

All is habit!
There is ample evidence that whether savings and investment are made, like I’ve always pointed out, are not really dependent on the capacity or ability of the person but rather on the habit that has been formed over time on them.

It has been said that in order for you to form a habit of an act, you need to repeat the act five consecutive times and before you know it, it gets into your subconscious, your subconscious takes over from there and the act becomes a habit.