Do you ever struggle with your financial behavior—even though you earn a great income and “know better?” You might find yourself asking, “Why did I buy that?” or, “Why is it so hard for me to reach my financial goals?” If so, you’re not alone.
I heard this quote from financial columnist and author Morgan Housel that applies to understanding your financial behavior. He said, “All behavior makes sense with enough information.”
So, what information helps us better understand our financial behavior?
Observing Your Behavior
Start by observing your financial behavior with curiosity rather than criticism. Observe it without judgment but instead with self-compassion. This is a core principle of mindfulness.
Professor Jon Kabat-Zinn defines mindfulness as “the awareness that arises by paying attention, on purpose and non-judgmentally, in the present moment.”
This takes practice. It is all too easy to judge yourself when you aren’t doing the things you know you should. Judging yourself makes it difficult to really analyze your behavior. Why? Because it is painful, and generally, we avoid what causes us discomfort.
As white coat investors, we can be way too hard on ourselves, which can make understanding our financial behavior more difficult. Being self-critical and perfectionistic likely helped you succeed and get you to where you are now. Maybe it’s not serving you anymore. You are worth more self-compassion.
When encountering financial behavior you aren’t proud of or are struggling to change, I recommend the following questions/statements:
- Start with self-compassion: What are your strengths? What difficulties have you overcome? Take a moment to recognize these.
- Add curiosity: This behavior is interesting. What need is this treating? Is there another way to meet that need? Often, unwanted financial behavior is a response to unmet needs. What emotions are present in the moment of overspending?
- Experiment like a scientist: Start with one small change. Make it automatic. Add incentives. Adjust as needed. Experiments don’t fail—they generate data. If an approach doesn’t work, move on to the next experiment.
More information here:
Money Scripts Doctors Inherit and Why They’re So Hard to Change
Flourishing at Work: What Physicians Get Wrong About Career Happiness
Understand Your Money Story
In Ramit Sethi’s podcast Money for Couples, he often helps his guests more fully understand their financial behavior by asking about their past. He asks questions such as:
- What phrases about money did you hear growing up?
- Would you describe your family as poor, middle class, or wealthy?
- How did those experiences shape you?
The guests' answers are striking, and they often closely resemble the current struggles they have. These questions reveal that many “bad money habits” are actually protective strategies that once made perfect sense. Reviewing where you came from, the environment you grew up in, and how your parents treated money can be illuminating in understanding your financial behavior.
Here is a personal example.
At a quick glance, if asked to evaluate based on financial metrics, you might conclude that my father is not particularly good with money. However, digging into his family experiences shows a more complete picture.
I remember him telling me many times that he grew up poor. He often went hungry. Sometimes his family didn’t have electricity because his parents couldn’t afford to pay the bill. He played basketball in his socks because he didn’t have shoes to play in, and I remember him telling me how he relished the time he didn’t have to check the balance of his checking account when buying clothes. He became a dentist and provided for his family. He doesn’t like to restrict spending, especially when it comes to food, and saving for retirement was never a high priority.
In the lens of his experience, he did quite well.
Would you benefit from reflecting on your family’s financial behavior?
Play Your Own Financial Game
Comparison is a part of human nature. It may be subtle but ever-present. At times, you can find yourself playing someone else’s financial game. You may find yourself spending money in a way that is popular, rather than being aligned with your values.
Are you spending and saving in a way that fits your financial game? What do you enjoy spending on the most? Would you rather spend money on vacations? A large house? Your own health and wellness? Do you like having a lot of extra cash on hand? Do you pay off debt even though it might make more money in investments?
Your financial game doesn’t need to make sense to anyone else. Ultimately, you’re the one who gets to decide.
Everyone is playing their own financial game. Know the game you are playing. It is very counterproductive to spend or save in a way that fits someone else better than your life and priorities.
If you don’t know the financial game you want to play, take some time practicing spending in different ways. I have learned that I like traveling internationally, like 1-2 trips per year. I don’t like spending a lot on my clothes. I enjoy spending on my health and wellness. Sometimes the things I thought I would really enjoy, I don’t, and vice versa. Practice this and adjust accordingly.
More information here:
Strengthening Your Mental Health
Performing a Personal Financial Health Audit: How Is Your Financial Health?
Identify Your Competing Priorities
Often, your competing financial priorities are invisible yet powerful in preventing you from achieving your financial goals. The oft-repeated advice from Dr. Jim Dahle to “live like a resident” for a few years is so powerful because it addresses the competing priorities of early attendings: the desire for a rapid increase of your lifestyle while also trying to pay down student loan debt. Each of your financial goals has a competing priority, whether or not you notice it. The more you can identify your financial competing priorities, the more easily you’ll understand and change your financial behavior.
For each of your financial goals, list its competing priorities. For example, my desire to sleep in is a competing priority for my goal of working out in the mornings. My desire to buy an expensive house early in my career is a competing priority for my ability to pay off student loans in 2-5 years after training.
In my progress toward my financial goals, identifying these competing priorities allowed me to see more clearly what was preventing my financial goals from becoming a reality. This enabled me to make decisions on what I could sacrifice to stay congruent with my financial priorities.
If you want to better understand your financial behavior, I recommend practicing these four exercises:
- Observe your financial behavior with curiosity
- Understand your money story
- Play your own financial game
- Identify your competing priorities
These practices have helped me understand my financial behavior more, which has led to more progress toward my financial goals. I hope they’ll be helpful to you on your journey as well.
Have you tried to observe your own financial behavior? What have you learned? Have you had the ability to change your behavior in a way that suits you?