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There’s a question financial professionals may never ask you and yet the answer can have an enormous impact on your entire financial future: how much do you trust yourself?
This sounds like an odd question in a finance column, but hear me out.
Financial advice’s excessive focus on apps, tips and hacks can make you think you just lack the know-how, but instead it may be a question of self-trust.Credit: Simon Letch
By now, I’ve had the opportunity to talk to hundreds of people about their finances and help many of them turn their financial lives around. In the process, I get to observe common patterns.
I’ve noticed that many of the poor financial decisions people make, or the financial challenges people face, are not a result of the wrong tool or strategy. They’re a result of low self-trust.
Here’s what that might look like in a financial context:
- Being scared to set savings goals because you’re worried you won’t be able to follow through, and you’ll just end up dipping into your savings (again)
- Feeling nervous when you receive extra money (e.g. as a gift, or tax return) because you’re worried you won’t be able to hang onto it
- Getting stuck in analysis-paralysis or indecision over what tools to use, or what investments to buy because you don’t trust yourself to make a sound decision
- Being overly cautious with spending or investing money because you don’t trust that you can make good financial decisions that you won’t regret later
This is where a lot of traditional financial advice falls down. The excessive focus on apps, software, tips and hacks leads you to believe that what you’re lacking is simply the know-how or the right tool.
If you knew how to save, you would. If you knew how to invest, you would. Or maybe it’s because you don’t have the right app. Why not try another one?
But that’s an overly simplistic assessment. It ignores the countless people who do, in fact, know-how. They’ve read the books, tried the apps, cycled through countless spreadsheets.
They’re still anxious, lacking in financial clarity and confidence, and often no further ahead than they were before. Because there isn’t an app, software, hack or tool that will work, if you don’t have the self-trust to make confident financial decisions and stick to them.
Just like, if you put someone who doesn’t trust their ability to drive in the driver’s seat, it doesn’t matter how new or fancy the car is, you’re still in for a rough drive.
The most important thing here is to start small. If you can’t trust yourself to save $100, then start with saving $5.
So, how do you build self-trust? Firstly, understand that self-trust is built the same way you build trust with anyone: by following through on what you say you’re going to do, consistently and reliably.
If you have low self-trust, chances are you don’t trust yourself to make good financial decisions because you’ve made many mistakes or broken plenty of promises to yourself in the past. Maybe you’ve set goals you gave up on, or you’ve started projects you never finished, or bought things you regret.
To repair that broken self-trust, you need to start showing yourself that you can make and follow through on good financial decisions.
The most important thing here is to start small. If you can’t trust yourself to save $100, then start with saving $5. If you can’t trust yourself to stomach investing $1,000, start with $100.
This isn’t the time to be ambitious. The objective is to start demonstrating that you are reliable and can trust yourself to follow through. The second most important thing is to celebrate when you do follow through.
It might feel silly to celebrate saving $5. You might think it’s ‘too small’ an achievement to celebrate. But here, size is not important. What’s important is that you followed through.
Bit by bit, this will give you the self-trust to take the next step. Once you can consistently save $5, then why not $10, or $20 or even $50? Soon, you’ll be saving $100 with confidence.
This is the real secret behind compounding growth. Compounding doesn’t work if you keep stopping and starting, or sabotaging your progress every few months.
For compounding to work, you have to stay in the game. That means you have to trust yourself enough to stay the course.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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