The Single Most Important Financial Skill

Investing? Frugality? Entrepreneurship?

The most valuable personal finance skill, in my opinion, lies under all of these things. It seems incredibly simple, but it’s also incredibly difficult to master.

It’s simply control over your emotions and desires.

Control over your emotions and desires keeps you from buying things just because you want them in the moment. It keeps you from spending money due to the peer pressures of your friends. It stops you when you’re thinking of spending in order to “cheer yourself up” when you’re down or “celebrate” when you’re happy.

Control over your emotions and desires keeps you from selling your investments when the stock market burps. It stops you from buying stock in a company just because you happen to think one of their products is “great” or “cool.” It encourages you to stick to the numbers and use them as your investing guide.

Control over your emotions and desires enables you to make the right decisions about your business, whether it’s a little side business or a big company. It prevents you from letting personal feelings interfere with making the right choice for your business.

If you can simply master (or at least improve) emotional control, you’ll take some giant steps toward improving your finances in almost every dimension.

This is something I struggle with all of the time. I’m tempted to make purchases that just fulfill a very short-term desire, something that will pass within a few days or a week. I get worried about dips in the stock market and how they affect our family’s long term finances. I struggle a lot with professional decisions, too.

There are a few little tricks I’ve found that have really helped me when it comes to taking the emotion out of financial decisions.

First, I have a monthly amount that I can spend on impulsive items. If I reach the limit of that money before the end of the month, I recognize that impulsive buys are simply impossible, so I skip things like stops at the coffee shop and so on. That money is budgeted for in advance, so I’ve already considered and planned for the broader financial implications of my impulsiveness.

Second, when I want something, I add it to a “wish list” for a while before buying it. Often, the simple act of adding it to my “wish list” ends up feeling as though I’ve taken enough action on that item. When I look at that “wish list” down the road, my desire for each item on that list is usually far lower and I end up deleting most of them.

Third, I make a long list of “pros” and “cons” for each significant purchase or professional decision. I try to back up the pros and cons with research, particularly using Consumer Reports. I make it my goal to list at least five pros and five cons for each major decision. I find that during this process, the “right” decision usually becomes clear and that sometimes it’s not what I expected it to be.

Fourth, I use the “ten second rule” every time I touch my wallet or add something to my cart. Do I really need this item? I spend ten seconds thinking about it. Quite often, I end up deciding I don’t need that item and it goes back to the shelf.

Finally, I spend some time each day meditating. This clears my mind and makes me much less prone to emotionally driven impulsive decisions. My main meditation technique is really simple – I just focus on my breathing for five minutes, thinking about breathing in, then breathing out, then I move on to thinking about the thing that is bothering me most and visualizing it melting away, which I do for about ten minutes. It goes a long way toward clearing my mind, which makes it much easier to maintain emotional discipline.

These things all work together to help me control my emotional response to situations and to sever the tie between emotions and my financial and professional choices.

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