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How To Use A Psych 101 Model To Change Your Financial Mindset

This summer, I decided to stop pretending that personal finance is just a household-chore-turned-hobby for me and start feeling out the possibility that it could become a career path or side hustle in the future. I wasn’t ready to invest too much time or money, so I started by taking a short online course to become a certified financial education instructor through the National Financial Educators Council.

Some of the earliest lessons in this course were about financial psychology: which factors affect how people make decisions about their money, and how we can personalize education based on those factors to make them more successful. The course touched on how to lead people to identify their values, how relationships with money develop, and how to identify where someone is — not just in their education level, but in their interest and willingness to become better at handling their money. That last part has made me much more aware of not only how I give advice, but also how I approach my own financial goals, particularly the parts I get stuck on.

The Transtheoretical Model of Change is a mouthful, but it’s a simple chart used widely across disciplines like education and addiction and even personal training, and a lot of people may have come across it in a Psych 101 class. The model defines the stages we go through as we become aware of issues and move towards awareness and change. I’ll point out some different identifiers of each stage, and I bet that some examples will jump out at you, either as “Wow, this is me” or “Damn, that’s exactly my friend.” As fairly savvy TFD readers, I’d guess most people are starting a stage or two in and could use some help psych-hacking themselves to get out of a slump and bump up a stage — or maybe you’re getting asked for advice, and you can help a pal bump up!

Precontemplation — Preparing to think

The Challenges:

  • Not realizing or denying that their current ways are problematic.
  • Writing off making changes as being too difficult, pointless, or too little too late.
  • Hoping something will change magically, like winning the lottery or “planning” to marry someone rich.


The Solutions:

  • This is the stickiest stage, and if a friend is here, you need to tread very softly. Creating a safe, non-judgmental space to talk is key. Pushing someone to action at this stage can backfire easily, and time is better spent asking questions and letting them talk so they move into contemplation on their own.
  • Let them tell you what matters to them and use those things to praise them instead of focusing on the negative behavior. Increasing their confidence will help in the future. For a younger sibling, you might try, “I’m impressed you brought this topic up, it shows maturity.”
  • There are four main types of precontemplators: reluctant, rebellious, resigned, and rationalizing. Evaluating your type(s) can help you decide what might help you advance, or detect why certain styles don’t work as well for you.

Ex.: A reluctant precontemplator may not have enough knowledge of the problem to see its negative effects. Providing gentle feedback showing otherwise, or asking questions that lead them to see consequences themselves, can gradually open their eyes.

To compare, if you identify as a resigned precontemplator, you may have tried and failed to pay down debt before unsuccessfully, and have since become discouraged. Addressing the specific obstacles or emotions that have tripped you up in the past will be an important step in adjusting your thinking to make change seem manageable.

Contemplation — Gaining interest

The Challenges:

  • Noticing peers are making big financial decisions, like buying houses and having kids, and feeling stressed about being behind.
  • Feeling torn because you can see equally valid reasons to change (I don’t have enough and I don’t want to feel stressed forever) and not change (it’s comfortable, it’s mostly working) at the same time, or bounce between the two. This can make this stage last for a long time.

The Solutions:

  • The goal here is to transition from motivating with external factors (debt-collectors calling, marital stress, etc.), which help get the topic on the table, to internal motivators that will be needed for lasting change (“where I am now, where I want to be”).
  • Take an honest look at the benefits of making a change…and alternately, the consequences of not. Personalizing this as much as possible makes this more effective. If you want to be debt-free, changing would mean working hard but then freeing up your money vs. being caught in a continuous cycle of overspending and monthly payments, or worse.


Preparation — Committing to doing

The Challenges:

  • Once you see that the advantages would clearly override any reasons you’d had to maintain the status quo, you’re ready to commit. But to do that, you will need to determine a plan specific to your needs.
  • Work on becoming more self-aware in order to see potential pitfalls and weaknesses you may need to address before they trip you up. What has thrown you off track in the past? What has worked for others?

The Solution:

  • Make a modified SMART goal that includes your clear definition of success, acknowledgment of your specific, potential hurdles, and where you can go for social support.
  • If you’re someone who needs a confidence boost, now is the time to try committing to an extremely simple plan, like reading one article in the next week or returning to the conversation on a specific day. It’s also okay if your major-change plan is chopped up into smaller, easy, daily/weekly goals, too.

Action — Let’s go!

The Challenges:

  • You’ve made some positive changes and are adjusting to them, like tracking your spending and fine-tuning your budget. Inevitably, you’ll over-budget in one area and under in another, which can lead you to feel deprived or lonely, and then thrown off track.
  • Small mistakes may be discouraging to some, while others will find early successes and become overconfident.

The Solutions:

  • Reading to gain more knowledge can help keep your mind on the right track.
  • Find an accountability buddy and share goals and obstacles you come across.
  • Be prepared for setbacks, and be gentle with yourself when they come.

Maintenance — Keeping it together

The Challenges:

  • Feeling guilty about mistakes or recurrences of old behavior.
  • Staying attentive to spending-triggers and on the lookout for new ones.

The Solutions:

  • Returning to past behavior is very common, so don’t beat yourself up if you do but don’t use it as an excuse.
  • Identify the situations or factors that were explicit parts of your poor money-behavior, so you can avoid them or be extra vigilant.

Of course, please keep in mind that this model is much more complicated than a general overview can explain (but it’s totally fascinating, I highly recommend reading more), and I’m not suggesting that you “diagnose” yourself or your friends. I hope that recognizing some of the challenges in your life encourages you to be more self-aware so that you can consciously choose to use these semi-catered solutions to help you move through the cycle.

No matter where you find yourself, I think we can always work on improving something. I’d say I’m generally in the Maintenance stage right now, but this definitely isn’t a cycle that you go through once and then stop. When I was writing this article, I noticed my own example popping up, and I was starting at the beginning again.

A while back, I’d started seeing Youtube videos and articles pop up about mutual funds and retirement account fees eating away at your long-term wealth, and how you need to ask about fiduciary rules and hidden fees and be ready to move your money. I honestly don’t think I knew about any of my fees beyond the annual one, and hadn’t given that much thought — Precontemplation — and I started to look into it…but then I got lazy, so for a few months I bounced between “it’s probably fine, and research is going to be confusing” and “I should really be making more informed decisions,” which morphed into, “Btw, isn’t personal finance supposed to be your favorite topic?!”

That line of thinking jumped out at me as obviously Contemplation. Since that’s a stage that is easy to get stuck in, I put time on my calendar to read and intentionally evaluate some articles I’d saved. Surprise surprise, knowing your fees = lowering your fees = more money. But I still sat on it and waffled, like you do. The benefits were obvious, and once they started to feel time-sensitive, I knew it was time to make a plan (Preparation!).

I had to look at myself: What was my biggest obstacle that would prevent follow-through? For me, it was the social anxiety of actually contacting the investment firms and advisors who have held my money. I had to work hard not to judge myself for admitting that, and decided to make a few smaller, very doable goals to start: searching the topic on my favorite PF blogs and talking to people I know. I’m not quite ready for the Action stage (I’m shooting for the end of the year), but I know doing more research and making an effort to not get overwhelmed by it is a good place to start.

This chart is my cheat-sheet. It completely takes away my excuses! When I hear myself trying to talk myself out of something by convincing myself I’m not informed enough or don’t have enough time, I can redirect my thinking. Looking at the chart and looking honestly at myself, I can see what I need to do next to level up, and I like knowing I can affect or speed up my decision-making.

Mairead doesn’t get why everyone doesn’t want to talk about money with her! She works for a small non-profit in the DC metro area, wants an Irish Wolfhound, and drinks her coffee black and constantly.

Image via Pexels

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  • Joseph

    Definitely hard to discipline yourself, but well worth the results, not short term by far! Great article

  • Tina Morris

    This article really made me think, and not just about my where I am in my financial mindset, but also with fitness & nutrition. Thanks for the examples, pointers & links.