Is it just me or are there more landmines than ever when it comes to making the right financial decision.
Most tempting offers or inviting purchases don’t take into account your specific financial situation, even if they’re handpicked for your mobile device by whichever algorithm is in control. A week ago I had an “offer” that caught my eye and made me think just a little bit harder about what I should pay attention to and where I shouldn’t pay attention.
Needs vs. Wants vs. Goals.
The first, on the right here, was an ad on a prominent retailer’s website. Let’s talk about my refund. It’s going to be paying off some debt. I definitely could use the “max value” of my refund, but it wouldn’t come from buying a grill, however much I need a bright, shiny grill on my back patio.
It’s a want. It’s not a need and it won’t help my accomplish my financial goals, so the ad made me laugh and then think about who would think “max value” of their tax refund is a new grill.
First of all, trying to minimize your tax return by withholding less is a worthwhile endeavor in the first place. That way you’re taking advantage of your money year-round. Second, if you’re getting a refund it should go to one of two things — saving or paying off debt.
In the Personality and Individual Differences journal, a study found that people who don’t use windfall or other bonus-type gains for either saving or paying down debt are people who are focused on their short-term situation. If you find yourself wanting to spend, spend, spend that refund, it may mean you have lost sight of your long-term goals.
There’s one thing that can make short-term thinking even worse and that’s debt. When given a windfall of money, short-term focused people in debt spent four times as much as other participants and were the group that saved the least and paid off the least debt.
One of the solutions to this mindset problem can be to set long-term goals with short-term rewards. Setting a timeline for your goals and rewarding yourself when you reach checkpoints can provide the short-term incentive you need to push toward your long-term goals. Paying off your debt might even reward you with that grill you have been looking at all week, if it’s within your reward budget.
Making Financial Decisions
Our financial lives can be contained entirely on our smartphone, but that doesn’t mean our financial and other important decisions need to be made with the swipe of a finger and then immediately forgotten.
The promise of having this data at our fingertips is wonderful, but if we’re the ones using it poorly then it won’t help us much at all. Real-time account balance and spending updates can help people cut their spending by 15%, while at the same time three taps in an app can buy something we may not need.
UCLA researcher Shlomo Benartzi and Duke researcher John Payne found that people did significantly worse on a test about financial literacy when they took it on a smartphone rather than pen and paper.
Our phones can fragment our attention and cause us to make short-term decisions without a thought for their long-term consequences. It’s not just impulsive spending decisions, but when you can apply for mortgages, check your IRAs and 401(k)’s from your phone then you’ll be making bigger picture decisions with a short-term mindset.
So focus on good things you can do with your phone when you’re on-the-go and don’t have much time to focus. You can check your balances before making purchases, whether it’s in your account or your Mvelopes. You can also set a wait time for online or mobile purchases. For example, waiting until you get home to actually click buy after leaving the purchase in your cart. When you get home if it still makes sense then go ahead.
Avoid having apps that deal with your long-term finances on your phone. Don’t check your IRA balance on a daily basis. It’s not there to be withdrawn once you hit a certain return. It’s there to be left alone.
Use your phone to create, plan and track a budget so you’re ahead of the game and have your finances at your fingertips. With Mvelopes you can be up-to-date on your budget anytime. Get started today managing your finances responsibly from your phone.