The 7 Habits of Personal Finance – Part II

In yesterday’s post, I introduced Stephen Covey’s habits of independence – Habit 1 (Be Proactive), Habit 2 (Begin With the End in Mind), and Habit 3 (Put First Things First), and how each of them has an application when it comes to personal finance.

Today’s (slightly lengthy) post will introduce the inter-dependence habits and the self-renewal habit – in other words, the habits necessary to have success with others and to adequately take care of yourself.

Don’t forget that while this is a great overview, I encourage you to pick up the book for yourself and reflect in more detail about each of the lessons these principles give us.

Habit 4 – Think Win/Win

The fourth habit is the habit of the abundance mentality – understanding that the “financial pie” in this world is not limited to some arbitrary number which we must snag the biggest piece of, but rather is an ever-growing pile of dough that we can cultivate and help grow even faster.

Understanding this shifts your entire mindset from competition with others, to cooperation, in the hope that through some action or idea you can, together, grow that financial pie and each take a piece of it home. Revolutionary thinking, huh?

Do I believe that I’m in competition with other personal finance bloggers for an audience? No – I’d rather build up other people in the same genre along with me – because there are enough readers to go around, and they can frequent more than one blog!

At home, do you believe that if one family member spends your total fun money, there’s nothing left for you? How about if one spouse wants to buy a TV and the other wants a vacation? If one gets their way, does it mean the other is out of luck? Does that cause constant bickering between kids or spouses? Instead, how about a little brainstorming to find ways to make more money for the things you want in life? Make the pie bigger instead of competing for what you have.

This habit is also the habit of the win/win mentality (obviously), meaning that we should seek solutions to problems which let both parties (you and the other guy) to walk away feeling like we’ve improved our own situation in some way.

Here’s a simple example, illustrated with a car purchase:

  • Win/Lose – I haggle you down to the point where you sell me the car at a loss, with nothing in it for you. Your boss gets on your case for giving in.
  • Lose/Win – I over-pay for the car significantly, resulting in big profits for you, but burdensome payments for me.
  • Lose/Lose – We become so frustrated with each other that I don’t purchase the car. You don’t get the sale; I don’t get a car. Or worse – I buy at a discount, but I still feel unhappy and tell all my friends about how bad your dealership is.
  • Win/Win – We find a mutually agreeable price that lets me get the car at a price I want, while giving you a profit target you need to reach.

Now, if only car dealers were so nice as to play along! I realize it’s a little dreamish. Most of them are in a Win-Lose mentality, which means you Lose-Win. (But hopefully, you understand the general notion of this habit through this simplified example).

Habit 5 – Seek First to Understand, Then to Be Understood

Habit 5 is one of the most difficult habits to apply in our own lives, because it’s the habit of empathy – learning to listen to and understand others before we impose our own opinions on them.

So many of us do this, and we also have it done to us, particularly when it comes to advice about money. Since the topic is no longer taboo in close circles of friends, it inevitably comes up, and someone surely jumps in with “Here’s what you need to do” before the individual sharing their problems is even done talking. How judgmental of us!

In the end however, this habit is probably of most importance when it comes to inter-family communications about money. Just think back to the last time you talked to your spouse or children about your finances.

If you’re the “money manager” of the home, did you really have a deep conversation with them, and did you get their thoughts, feelings and opinions out on the table? See how they’re doing with following your budget? Expose their frustrations?

Or did you simply pull out your financial statements, do a little talking down and intense questioning with everyone, set out the game plan that they have to follow, and adjourn the meeting?

So many of us fall into the trap of the second scenario, but we’ll never have buy-in from the rest of the group acting like that. Your family needs to feel that you understand them clear as day, before they willingly and full-heartedly sign on to your jointly developed plan of action, and will back you up no matter what.

Habit 6 – Synergize

The last habit of inter-dependence seeks to teach us to find better solutions to problems than either party in a meeting could have come up with on their own. In many ways, it’s an extension of Win/Win – finding a solution that’s not a compromise (some arbitrary middle-of-the-road meeting of the minds where either party has to lose a little bit), but true synergy – better than my idea and better than yours, by many-fold.

It is, as Covey calls it, “creative cooperation.” And how important and beneficial it could be in your own financial life! Again, think back to a conversation you had with family about money. Did you simply seek to find a solution that would satisfy everyone partially, or did you brainstorm as a group to find something none of you had considered? Of course no one had thought of it – it took all of you to come up with the idea!

Value the differences between yourself and others – use them to your advantage when it comes to finding that “third alternative.”

Habit 7 – Sharpen the Saw

While the last three habits have almost strictly to do with your interaction with others, the seventh and final habit is intensely personal – it’s the habit of self-renewal. I also believe it’s probably the most important one, and key to keeping all of the other areas in your life functioning well.

While a discussion on Habit 7 can take me all day, let’s briefly look at how this habit applies specifically to money and things you can do, in the context of the four human dimensions:

  • Physical (To Live) – The physical dimension caters primarily to health and the body, but it’s also the dimension that provides discipline and structure. Developing consistency and discipline with money is probably the most critical price of entry to financial success. Treat the physical dimension as “taking care of the basics” in your financial life – taking control of the first three habits and creating the discipline to follow through on your resolutions.
  • Mental (To Learn) – If you’re reading this, you’re already exercising this dimension by learning more about money. Financial education is important to discovering new ideas, methods, ways of doing things, etc. This is also the dimension that teaches us self-reflection and seeking to understand why we behave in certain ways. Talking about finances with others and/or keeping a journal where you discuss your own money habits, tendencies, and feelings often is a good way to discover your motivations. Keeping an open mind to new money ideas, and teaching others in your family about what you’re learning will also stretch this dimension.
  • Social/Emotional (To Love) – Covey’s “8th Habit” goes a bit deeper into the components of social intelligence, but in its essence, this dimension is about mastering all seven habits and applying them in your personal life, and in your social life with others. Cultivating relationships of open communication and judgment-free synergy is essential to financial success beyond our own “bubble.” Unless you’re single and locked up at home, money interactions with other people are inevitable, and there is much to learn in Habits 4-6 on how to do it.
  • Spiritual (To Leave a Legacy) – The spiritual dimension is about finding a purpose for yourself and a way to leave something behind. This has a direct financial application in terms of charitable support and finding ways to use your money that you believe would make the world better. It’s also the dimension of acting with integrity in your life – following principles and “doing what’s right” no matter what the challenges. Finally, it’s about acting with respect to your passion, or being true to your life calling and what you believe you were meant to do. It’s very personal, self-reflective, but vitally important to understand if you want to be successful.

Teach This Material

Covey’s advice to those reading his books are always to “teach the material you learn.” Then apply it again and again in your own life to make it a habit.

The 7 Habits have a lot to teach us about how we can better handle our money, and I hope you’ve gotten a bit of a taste on how you can do it too!

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