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The Psychology of Personal Finance: How to Have a Healthy Relationship with a Limited Budget

Finance

Photo Credit: www.thebalance.com

The human mind and money have an overly complex relationship.

A cause of shame, anxiety, depression, and oftentimes thought as a source of happiness, people have long associated money with emotions. And this is why people seldom handle their personal finances logically.


Despite it being in their best interest, people don't save money. People spend too much out of excitement or too little out of guilt. This is especially true for people with a limited budget. Studies show that people with constrained personal finances invest their emotions heavily with money.

So with that in mind, here are the key concepts you have to understand in order to have a healthy relationship with money:

Understand your finances
Having a healthy relationship with anything entails having a deep understanding about it. A good grip on the limits and potentials of your personal finances can help manage your expectations and rationalize how you see money. A provocative think piece published on the New York Times highlights how people feel happier with cash on hand rather than investing that cash, even if the latter makes much more long-term sense.

In many contexts, talking about finances is still taboo. At work, people don't talk about remuneration. In gatherings, discussions around debt rarely come up. And even at home, any dialog on managing money almost always end up emotionally charged. To attain financial literacy, you have to pierce this veil and have a grounded approach on managing debt, expenses, and savings.

Understand the game

Contrary to what you might think, consumers aren't that savvy. Marketers around the world have always tapped into the fact that emotions are the greatest drivers of consumption. People buy things when it has an emotional presence or relevance.

Knowing the pain points of being a consumer and how marketing utilizes your emotions to target your wallet are the best ways to get ahead. Tricks like making the medium sized drink almost as expensive as the large one to point you in that direction is an old one that remains effective to this day.

An online survey commissioned by the housing charity Shelter found that families who rent suffer from anxiety. Especially in highly coveted markets, you need to be aware of certain unsaid rules that can make survival difficult for the uninitiated. For instance, in one of Yoreevo's guides to NYC real estate, the site reveals how co-op square footage in the city is almost always overstated. This makes it very hard to compare units based on stated size alone.

These are just some of the reasons why the vicious cycle of anxiety, depression, and guilt in spending is also fueled by consumerism. But you can do something about it. Having a healthy relationship with spending means discerning your needs and wants and making sound financial decisions from that discernment.

Furthermore, unhealthy notions of your financial capacity or situation may even lead to a decreased capacity to make money. Some CEOs in this interview think they won't get funding if VCs uncover that they have mood disorders or are stressed psychologically.

Understand yourself
The most relevant emotions related to money are guilt, shame, fear, and envy. Being more conscious of when and how these feelings come up when you spend, save or invest will help you to be more mindful with money.

Mint recommends you forgive yourself when you miss a credit card bill or overspend. Beating yourself up over financial mistakes can end with you sinking even deeper into the cycle of guilt and shame.

This should go without saying: never make major financial decisions when you're emotional or in a vulnerable state. But it's easier said than done. Creating powerful habits or rituals like taking a jog or eating a meal first before deciding can aid in disengaging from emotional decision making.

A deep understanding of yourself is key in having a level-headed approach to managing or even growing your finances. Personal finance is really one of those fields where emotion fails and logic thrives.

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Business

No Funding Necessary: How I Built My Business In 9 Steps

Organic growth has made all the difference for my company. Since its start in 2010, Fresh n' Lean has delivered more than 7.2 million organic meals that are free of pesticides, hormones, GMOs, and other additives. The business itself has grown organically, too, without the help of any outside capital. Over the past decade, Fresh n' Lean's bootstrapped operation has grown into a 220-employee company with nine-figure revenue.

Here's how I've been able to successfully build my business without taking on a penny of outside funding.


1. A Hard Decision

The decision of whether or not to take on outside capital is a difficult one.

I was lucky— I relied on personal savings to fund Fresh n' Lean at the company's onset. I thought Fresh n' Lean was a meaningful endeavor, and I believed in myself and my vision.

Not every business owner would be financially able to make the same decision I did. Either way, it's important that your company's growth happens gradually and naturally.

2. Start Small

I was an 18-year-old college student when I launched Fresh n' Lean.

I would regularly work upwards of 20 hours a day— cooking dishes, arranging the meals in tupperware containers, handwriting the labels, and personally delivering them to some of our earliest customers.

Pretty soon we were shipping meals nationally, and I began renting a commercial kitchen space.

We generated a ton of enthusiasm from our customers, and that support prooved that we were on to something. But the early days featured lots of trial and error. We made mistakes and learned from them before scaling the business.

3. Rely On Your Network

Fresh n' Lean started with a team of five people. My friends and relatives chipped in, and my brother Thomas joined Fresh n' Lean as co-CEO.

Relying on those close colleagues was so meaningful in helping me get the company off the ground. I often look at Fresh n' Lean's employees as a family, and that mentality was especially true in those early days.

As I ramped up the hiring, my experiences with every aspect of our operation made me sharp at understanding the company's needs— and helped me to hire employees with the right skill set and mentality to drive the company forward.

4. Hold Firm

Fresh n' Lean embodies a lifestyle choice, a chance for everyone in the United States to have access to nourishing meals amid their busy lives.

We probably could have driven more sales by offering non-organic meal options, but I wanted the company to remain true to my mission.

A decade later, I'm so proud to see the impact Fresh n' Lean has made in redefining fast food.

5. Capitalize On Industry Trends

We live in a society of instant gratification— we want everything now, and our world is completely focused on convenience.

When Fresh n' Lean was launched, the idea of receiving ready-to-eat meals on your doorstep was a strange concept. But a decade later, we're used to having everything delivered to our homes. Recognizing and capitalizing on those changing consumer habits was a big part of our growth.

6. Don't Bite Off More Than You Can Chew

For years, I wanted to open our own kitchen facility— it was a top priority.

But building the space was a difficult and extensive process that could have financially devastated us if we attempted it too soon. In those early years, the project would have left the company too vulnerable.

Instead of moving forward with the project, we waited. In the meantime, we continued renting commercial kitchen space. One day a week turned into two, and then three and four, and eventually we were renting the space five days a week.

In time, we had no other options but to build our own kitchen facility— and our restraint before moving forward with that project was crucial, even if it was frustrating for the short-term.

7. Focus On You

As you build your company, it's easy to try to compare it to the growth other companies experience.

But headlines and press releases don't reveal the full story, and outside funding can mask structural and foundational problems. One example is the online ordering and meal delivery service Munchery, which secured more than $125 million from lenders before closing in early 2019.

Every company's story is unique! You can't judge your company's success based on the ups and downs of others. Focus on making your company the best you can.

8. One Thing At A Time

Our meal offerings have expanded through deliberate, strategic planning and extensive customer feedback.

We started with vegan meals and followed with protein-based meals. Other meal plan options, Paleo and Keto, were added to the menu in the past few years.

Building the recipes takes time— we want to be sure to get it right. And our customer feedback ensures that there's built-in interest before rolling out new meal options.

9. Be Resourceful

Building the company without outside capital forced me to be more resourceful. I couldn't throw money at everything I wanted to change— I had to be patient and find alternative solutions.

It's similar, in a way, to cooking a dish without having every ingredient listed in the recipe. You must have the key ingredients! Our executive chef was one of our earliest hires.

But you can adjust and improvise on some of the secondary ingredients, using whatever alternatives you have available and relying on tried-and-true methods to fill in the gaps.

Who knows? Through experimentation, you just might find a better way to cook your dish or guide your company forward.