Editor's note: This article originally ran on Five Cent Nickel. It has been reprinted here with permission.
When it comes to financial decisions, do you feel like the boss or like it’s your first day on the job?
If you don’t feel in command, it’s understandable. Millions of people with no background in finance are called upon to make a series of very important financial decisions: making a budget work, saving for college, financing a house, planning for retirement, strategizing on investments, etc., etc.
Many find this responsibility intimidating — and unfortunately, that sense of intimidation can contribute to poor decisions.
It helps to learn a thing or two about finances, but even before you do that, a little attitude adjustment can increase your chances of financial success. You have to resolve to take control of your financial situation, and there are several ways you can act on this resolution.
People don’t feel in command of their finances
The National Foundation for Credit Counseling polled people on how much command they feel over their financial decisions by asking them to describe themselves as if they were playing a role in a corporation. Here are the results:
- Just 8 percent felt in command enough to describe themselves as the CEO of their finances.
- 30 percent felt some degree of confidence, describing themselves as middle managers on their way up.
- 35 percent saw themselves as entry-level employees just trying to catch on.
- 26 percent felt overwhelmed and wished they didn’t have the job.
The need for confidence
This lack of confidence in the ability to make financial decisions becomes a self-fulfilling prophecy. When people lack confidence, they tend to make bad decisions. Here are three significant ways that a lack of confidence damages financial decision-making:
- Avoidance. The failure of many people to do even rudimentary retirement planning is not simply because they didn’t get around to it. Consciously or subconsciously, people tend to avoid getting started on tasks they feel are going to be too difficult for them. Because people lack confidence in their ability to take on retirement planning and other major financial decisions, they ensure failure by never even getting started.
- Acquiescence. You may deal with a number of financial professionals in your lifetime — bankers, investment advisers, planners, etc. Most of them will probably know more about the field than you do, and many of them will have something to sell. That’s a dangerous combination. It leads to consumers agreeing to sales pitches simply because they don’t feel qualified to disagree.
- Indecision. People get whipsawed by financial market volatility. They open up an investment account in search of higher returns, but then pull back when they start losing money. They only get back in when the market has climbed back up enough for it to feel safe. This failure to choose a course and stick with it leads to bad investment returns, and bad financial decisions in general.
Here are seven ways you can act more like a CEO than a trainee, and take better control of your financial situation: