The Secret To Financial Success? Time.
Time and Money. Two things there never seems to be enough of. And now it turns out that one may be intrinsically linked to improving the other.
How so? A recent study done by Magnify Money and Stanford professor Philip Zimbardo explores the relationship between financial knowledge and financial behavior. Surprisingly, the results don't point to a higher level of financial knowledge equating to better financial decisions. Rather, the simple tool of time is what they found to be the key to good financial behavior.
Study on Financial Knowledge and Behavior: The Results
The survey done by Magnify Money was recently discussed in an article in The New York Times. The surprising result that greater financial knowledge doesn't equal better financial behavior makes more sense when explained by Professor Zimbardo and Magnify Money's Nick Clements and Brian Karimzad:
"…'just because you have the ability to do the math, does not mean you are more likely to be financially healthy.'"
As they say, good intentions do not good behaviors make. Zimbardo, Clements, and Karimzad go on to say what does pave the path to positive financial behavior:
"Being financially literate does matter. But the deciding factor of whether we'll act on that knowledge depends in part on our time perspective."
In other words, whether your thoughts are living in the past, present, or future will make the difference in your financial behavior. A brief summary of the results shows that people who live in the past may be more cautious (which can cost them money in the stock market if they fear risk) but also less likely to default on debt. People who live in the present tend to focus more on the moment and less on changing their financial situation. People who live in thefuture may be more financially literate but also feel that they can predict the future, which could lead to taking on bad investments.
While this study focuses on how our time perspective dictates our financial mindsets, there might be even more that time brings to the story. In fact, simply taking the time to pursue this self awareness and create positive change in our financial behavior might be just what it takes to turn that well-intentioned path into positive results.
Time as A Tool: Reflecting on Your Financial Mindset
None of the time perspectives mentioned in the survey present a perfect scenario. Just like everything else in life, each perspective has its pros and cons…but what can present the optimal scenario isbalance.
Part of that balance is taking a look at each perspective – in taking the time to do so. If you're a present or future thinker, give yourself a few minutes to think of the past. What kind of decisions have you tended to make? Is there a pattern? What does that pattern say about you? About your finances? When examined closely, it's easy to find patterns in our behavior and then use those patterns to optimize our present and future behavior.
If you're a past or future thinker, what you might need is a little bit of time thinking about the present. While it's extremely useful to examine past behaviors to improve future decisions, completely ignoring the present could leave you feeling deprived. Don't forget to enjoy the moment too, especially since the path to financial freedom isn't often short or easy. Focus on what you need to do, but reward yourself for milestones as you go.
If you're a present thinker, take a minute to examine your past and think about your future. Do your present day decisions reflect the future you want to have? Do they exhibit patterns from your past? As important as it is to enjoy every moment, sometimes the things we want in the moment don't map to the goals we have for the future. Creating a balance between present desires and future goals will ensure happiness both now and into the future.
Time As A Tool: The Power of Mindful Decisions
Whether you have little free time or more than you know what to do with, purposefully using just a bit of that time to reflect on your financial behaviors will pay off in the end. This reflection creates a mindfulness that allows us to not just act in the moment, or out of fear, or out of future predictions. Rather, mindfulness – stopping to think through the consequences and potential results of our decisions – gives us a chance to see through a balanced lens. And when we're working with the whole picture like that, we're much more prepared to make positive financial decisions.
Shannon McNay is the Community and Customer Support Manager at ReadyForZero, a website that helps people get out of debt faster on their own. Shannon focuses her writing on the ways our lives are impacted by our finances and vice versa - including finances in your relationship, finances in your career, and how to overcome the mental barriers to paying off debt. You can follow @ReadyForZero and @shannonmcnay on Twitter.