The hidden cost of poor money management: is your financial health at risk?
Unveiling the far-reaching consequences of financial mismanagement on personal and family well-being.
Let us explore the psychological underpinnings of financial struggles through a blend of spiritual insight and practical self-help strategies.
Consider these thought-provoking questions:
- Do you struggle to generate consistent cash flow from your business?
- Does your salary always disappear too quickly?
- Are you always broke and struggling to make ends meet despite your three jobs and side hustles?
- Did you ever think to stop seeking online tips and tricks to make money and ask yourself whether you might have a money management issue?
Endlessly chit-chatting about money and being a top dog at managing finances are very different things.
Why, why, why?
If you keep asking yourself why money flows from your hand despite your hard work, the cause could be different from “Billionaires know how to and don’t, the cost of living skyrocketed, too many taxes, I don’t make enough money, I need to find a better job, I have debts to repay, I don’t work enough, I need a better method to make money, I need to understand bitcoins, I need to save money, …”
The B-Side.
You should consider reflecting on your past: one or more key figures may have harmed your relationship with money.
Perhaps you had one parent, both parents, or your role model who passed on inconsistent or incorrect concepts and information about how to implement proper money management that is also ethical, moral, and suitable for your needs.
“If you want to understand the causes of the past, look at the results manifested in the present. And if you want to understand what results will manifest in the future, look at the causes posed in the present.” — Ancient Buddhist text.
Quite frequently, a poor relationship with money stems from deep-rooted beliefs and behaviours formed during childhood and adolescence.
During the first two decades of life, many are unaware of how handling money will affect their future.
Managing only the bare minimum needed to survive can lead to tragedies when individuals suddenly acquire large sums of money, as seen in the case of gambling winnings.
“…greed and the need that people have… cause them to go broke when winning the lottery.” (CNBC)
Let’s focus on the most frequent root causes of a poor relationship with money.
If you expect me to cover the basics of finance, I’m sorry, this isn’t the place. The whole article mainly covers topics relating to psychology rather than finance, people’s lives rather than tricks to screw the stock market!
Here are the main causes of poor money management.
1. Childhood Influences — Parental Attitudes and Behaviors.
— Scarcity Mindset. In families where money is always tight and parents constantly worry about (and talk about incessantly), finances can raise fears of not having enough — being poor is frustrating mainly among teens who believe they need things to fit in and look like their peers.
— Overspending. Noticing parents who frequently spend beyond their means can create excessive spending and poor saving habits. As a parent, you should avoid showing off at any cost when the family lives on a budget. Stop buying cheap branded stuff thinking fast fashion is affordable. Fast fashion industries thrive on this misconception.
— Lack of Financial Education. Parents who don’t discuss or teach financial literacy leave their children ill-prepared to manage money responsibly. “There’s no need to teach them finance when you’re broke!” Wrong!!! Families are broke because no one has been taught money management. After all, there was not enough money, so why bother?!
— Ignorance. Parents who have identity problems or suffered child mental or physical abuse, who grew up in dysfunctional families, unconsciously pass on to children their “problems”, quite often turning their offspring into the mirror of their own disorders or failures.
Ignorance is often seen as a negative trait, as it can lead to misunderstandings, poor decision-making, and the perpetuation of harmful stereotypes or prejudices. However, it is important to recognize that everyone has areas of ignorance.
What is ignorance today?
Lack of knowledge or information, lack of education or training, lack of life experiences, willful ignorance and cultural ignorance, just to sum up basic aspects of human life on Earth. But let’s not be fooled by high-sounding qualifications: even among the Nobel Prize winners there are unaware people, driven by a huge egoic mind and stupid.
Are you sure you can handle money?
Or is someone or something dealing with it without your knowledge?
2. Economic Instability.
— Frequent Financial Crises. Experiencing repeated financial instability, such as job losses or bankruptcy, can create a sense of financial insecurity and anxiety. Families often make wrong decisions for the right reasons and teens suffer the most when parents lose their jobs and suddenly the family environment turns into a toxic place.
— Debt. Growing up in a household burdened by debt can lead to either an aversion to borrowing or a normalisation of living with debt. The normalisation of living with debt greatly impacts how people mismanage even their meagre salary and how children and teens perceive debts and money in general.
Loan sharks don’t thrive on the need for money but on people’s bad habits, poor money management, and ultimately their ignorance and unconsciousness.
3. Emotional Associations with Money.
— Stress and Conflict. Exposure to discussions about money can create a negative association with finances, causing people to avoid dealing with their finances or to mismanage them. Without a basic understanding of financial concepts, people risk becoming involved in discussions or making decisions they don’t fully grasp. This lack of knowledge can lead to harmful consequences for their own lifestyle and that of their family members.
— Guilt and Shame. Being made to feel guilty for wanting things or for financial mistakes can lead to a poor self-image and unhealthy financial behaviours. This paragraph is related to “Lack of Financial Education”. Many of our decisions are based on something we know or have learned which is rooted in our experiences which also are rooted in memories, that’s our main source of “opinions of everything”.
Every experience has already been experienced (… by us or by others…) or you wouldn’t recognize it. You recognize an experience as being good, bad, beautiful, … and so on according to your conditioning, and therefore the recognition of an experience must inevitably be old. — Jiddu Krishnamurti
Adult Behaviors and Beliefs.
4. Lack of Budgeting Skills.
— Impulse Spending. Without proper budgeting skills, individuals may find themselves trapped in a cycle of impulse purchases and misplaced priorities. When people tighten their belts, one of the first casualties is often healthy food, dismissed as too expensive. While there’s a kernel of truth to this, it’s not the whole story.
When your diet consists solely of microwaving frozen meals and speed-dialling for takeout, something occurs: you and your brood become walking zombies, your collective mood plummets faster than your bank balance, and those supposed savings evaporate into a cloud of medical bills and pharmaceutical receipts.
“But vegetables are so boring!” cry the culinarily challenged masses. “They take time to cook, the kids treat them like toxic waste, and they spoil faster than milk in the Sahara!”
Advertising made up a magic word: convenience, the most widespread excuse not to learn how to feed your family with healthy food with little money.
In a nutshell that’s how your poor money management can become a toxic habit with catastrophic short-term effects.
— Over-Reliance on Credit. Using credit cards for everyday expenses without a repayment plan can lead to significant debt. Spending recklessly without financial planning can result in a chaotic life, possibly ending in divorce and crashing on a friend’s couch. It might sound like a Hollywood drama, but as a trained listener, I hear these stories every day.
5. Financial Avoidance.
— Ignoring Financial Statements. Avoiding bills, bank statements, and credit reports out of fear or anxiety can lead to unmanageable debt and missed payments. For some, checking the mailbox makes them wish to escape to Everest hoping not to be followed. Especially when one lacks the courage and humility to seek help from financial recovery experts.
— Procrastination. Delaying financial planning, saving and investing due to lack of knowledge or fear of making mistakes.
Procrastination puts me in a contradictory position because recent research and studies indicate that it may not be as harmful as previously thought. I have spent months trying to understand the underlying motivations, rather than those promoted by therapists selling courses and placebos. I sense that the excessive focus on procrastination might be a marketing gimmick, and people have latched onto it to exploit its advantages.
This does not mean that one should postpone essential financial tasks such as payments, careful planning, and saving money. However, not doing these things when the essentials are missing shouldn’t nourish our victimhood.
6. Poor Savings Habits.
— Living Paycheck to Paycheck. Without the habit of saving, individuals may have no financial cushion, leading to stress and vulnerability to financial shocks. Another scenario that depicts the lives of millions of people today. Bad habits.
How could you break free from this anxiety-inducing routine? There’s no such thing as a miracle. The most effective solution in the short term in most families is to cut all impulse buying, all non-essentials and tighten the belt as tight as you can. Sell money-draining cars, stop eating out, that’s no restaurant, I said NO restaurant, not even once a month. No more money-draining entertainment. Stop growing food delivery companies fat or the kebab guy as I have already explained. Cut everything you “really” can’t afford until the hurricane is settled, all debts are repaid and a careful financial plan is laid down.
— Lack of Emergency Fund. Not having a savings buffer for emergencies can result in resorting to high-interest loans or credit.
As I mentioned, loan sharks exploit people’s poor financial habits, not just their temporary need for money. Building an emergency fund is crucial, but how can you do it while living paycheck to paycheck? The answer is to save slowly and steadily. No lottery, online gambling, or Bitcoin investment will help. When money is tight, you can only build an emergency fund one banknote at a time. Skip the occasional bottle of wine or alcohol; it’s not a solution to your problems. Instead, put that money into your savings. One day, you’ll be glad you did.
Inconsistency: when someone preaches wise money management but buys lottery tickets. — How to explain “to walk the talk”.
7. Emotional Spending.
— Retail Therapy. Using shopping to cope with emotions can lead to unnecessary debt and financial strain. Surprisingly, some doctors still suggest shopping to alleviate depression, but this advice only benefits shopping malls while leaving people with guilt. Society perpetuates this misconception, so be mindful of it. Stop using shopping to escape financial troubles. A new pair of shoes won’t solve your problems or turn you into the wolf of Wall Street.
— Keeping Up with the Joneses. The pressure to maintain a certain lifestyle for social validation can result in excessive spending and financial overextension, driven by ego and societal expectations. In some countries, this dynamic is heavily exploited in advertising. By creating a sense of “not having enough, and not being enough” industries effectively boost sales by tapping into people’s insecurities.
— Overestimating Income. Assuming that future earnings will always increase can lead to taking on more debt or expenses than can be realistically managed. Clearly, this represents a trait of inexperienced entrepreneurs lacking business management skills along with financial planning. It’s quite impossible to help this type of business owners change their mindset about their skills and business acumen. So beware of them.
— Underestimating Expenses. Failing to account for all expenses, especially unexpected ones, can lead to budget shortfalls.
This applies to families and those who hope to get back on their feet by starting a side hustle. For this reason, acquiring the basics of administrative and financial management of a business (as well as a family) is of crucial importance.
Here is a quick tip for the growing number of people starting a side hustle worldwide. Before starting your business, learn about account management and how to read the income statement.
Balance Sheet vs Income Statement.
Balance sheets and income statements both provide valuable insights into a company’s financial health, but they differ in several key aspects. Among the five most important distinctions between a balance sheet and an income statement here are the two main ones:
1. Time Frame. A balance sheet presents a snapshot of a business’s financial situation on a specific date, such as January 1, 2024. An income statement details a business’s revenue and expenses over a designated period, such as January 1 to December 31, 2023.
2. Assets vs. Performance. A balance sheet focuses on what a company owns and owes at a specific point in time. An income statement evaluates how a company has performed over a certain period, highlighting its profitability through revenue and expenses.
Let’s get back on track. You’re reading an article on how poor money management impacts your life, your mental and body health and your family’s health present and future.
Here are the last two factors.
9. Cultural and Societal Influences.
— Materialism. Societal pressure to own the latest gadgets, fashion, and cars can lead to unnecessary spending and financial strain. If you’re up to here there’s a high chance you’ve been reading the whole article. That means you already went through the part about non-essential spending so I won’t focus on it.
— Stigma Around Money. Cultural beliefs that discussing money is taboo can prevent individuals from seeking advice and learning proper money management. “Are you serious?”, you’re probably thinking. Do people have taboos around money these days? In many world areas women aren’t allowed to possess or deal with it, much less to have a job. By the end of 2024, we will reach 8+ billion people on Earth. Get over it.
10. Psychological Factors.
— Self-Worth Linked to Wealth. Equating personal worth with financial success can lead to risky financial behaviour appearing successful. I won’t spend much time on it. Billions of individuals have been conditioned to believe that being wealthy and having money are “real” values, and that money is the passport that opens all doors. I hope you have become aware enough to free yourself from these chains.
— Fear of Poverty. A deep-seated fear of becoming poor can result in either excessive saving to the point of missing out on life or reckless spending as a form of denial.
Last but not least. Such behaviour can ultimately lead to various mental disorders and dysfunctional habits, stemming from an experience of poverty.
People who grew up in a family where money was scarce, may become excessively attached to money. They might develop an obsession with money, grow up greedy, and at the same time be incapable of managing money and savings. Despite these tendencies, these individuals might waste money daily in a bid to seek temporary relief from their fear of feeling poor. There stems their lack of financial planning and the skill in money management.
In the long run, all of these influences and behavioural models, or just some of them, could contribute to harmful habits in adults, like causing them to depend on financial support from one or both parents or relatives.
Wrapping it up: Your financial wake-up call.
So, you’ve made it this far. Great job! You’re already miles ahead of those still blindly. But don’t pat yourself on the back just yet — there’s work to do.
Let’s face it: poor money management isn’t just about empty pockets. It’s a silent killer of dreams, relationships, and yes, even your sanity.
In this article, we’ve journeyed through childhood influences, emotional spending traps, and the societal pressure to keep up with the Joneses (who, by the way, are probably drowning in debt themselves).
Remember, changing your money mindset doesn’t happen overnight. It takes time, effort, and probably a few embarrassing moments. But stick with it, and you’ll navigate your way to calmer financial waters.
My last tip.
Learn to separate the skilled guys from those who give advice too easily based on superficial conversations and trust the former.
“Hey, how can I tell apart the dumb ones when I don’t know much myself?”
Learn the basics, they are a great way to spot fake gurus.
