Friday Financial Tidbit-How Personal Finance is only 20% math and the rest behavior

One of the most common reasons people use for their finances being in disarray is that they are not “a math person.”  Being a math person myself, I too used to think that personal finance was mostly a math problem.  However, the more and more I study and teach personal finance, the more I realize that the idea that personal finance is 100% about math is a common misconception. It turns out that the math is pretty simple and the real key is to be consistent in your behavior.

The math of personal finance is something a third grader can handle.  All you have to do is live on less than you make!  The main problem we have is putting it into practice and changing our bad financial behaviors.  It does not matter if you know your expenses must be lower than your income if you do not sit down and create a budget before the month begins.  You still have to be able to say, “No,” to yourself when you crave something that is not in your budget.  The ability to delay pleasure and save up to buy a car or take a vacation instead of using credit to finance it is more important than any complex financial formula.  Consistently saving for your kid’s college and contributing to your retirement account is more important than picking the fund with the highest return.  Your behavior when it comes to money supersedes any financial formula.

Yes, knowing the mathematical principles will help you if you combine them with your actions.  Knowing the importance of compound interest on investments and knowing the amount of debt you have and developing a plan to get out of it, will lead you to huge financial gains.  But, it does not matter if you don’t modify your behavior and apply the principles correctly.  So, the next time you think you have to be a numbers wiz to excel in your personal finances, remember that most of PERSONAL Finance is your behavior!

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