Historically, people’s financial success has been measured by outcomes. Are they able to pay their bills each month? Are they drowning in debt? Do they make a good income? It’s all about results.
But more recent research has focused on an entirely different part of someone’s financial picture: the emotional component and money mindset. And it’s becoming increasingly clear that there’s a link between the way someone thinks about their money and their ultimate financial results. Financial confidence is one of the best predictors of overall financial wellness.
I’m an amateur personal finance geek.
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Personal Capital Dashboard User, February 2021
When we spoke with Ruzwana Bashir, CEO and founder of Peek.com and Personal Capital Financial Hero, she spoke of the importance of financial confidence. Her confidence in her finances allowed her to earn a world-class education, start her own company, and become a financial role model for women everywhere.
What is Financial Confidence?
Confidence is defined as “a feeling or consciousness of one’s powers or of reliance on one’s circumstances.” From that, we can see that financial confidence is the knowledge of your own power over your finances. In other words, when you’re financially confident, you trust your ability to manage your money successfully.
How to Improve Your Financial Confidence
1. Educate yourself
Financial literacy — or the understanding of financial concepts and skills — is at the very core of financial confidence. When you understand finances, you begin to feel more confident about all your financial choices. You no longer have to feel like you’re just guessing your way through managing your money.
2. Create a financial plan
One recent survey found that 63% of people with a written financial plan report feeling financially stable, and 56% felt very confident about reaching their goals. On the other hand, only 17% of those without a financial plan felt confident about reaching their goals. If you’re struggling with financial confidence, just taking this one step can make a huge difference.
3. Uncover your beliefs about money
We all carry subconscious beliefs around money that we picked up as early as our childhood. Growing up, the things your parents said about money may have stuck with you, creating subconscious beliefs. Maybe your parents made comments like:
- We’ll never have enough money.
- There’s not enough to go around.
- Money doesn’t grow on trees.
And when many of us are raised with those beliefs, it’s no wonder that we struggle with financial confidence. But the good news is that once you identify the negative beliefs you have around money, you can start to change them.
4. Focus on small improvements you know you can achieve
When we think about improving our finances, most of us think about how we can make the biggest difference. But habit expert James Clear teaches that you’ll see even more success if you focus on improving just 1% at a time. So ask yourself — what can you do today to make your finances 1% better?
Consider this: you set a huge financial goal for yourself and then fall short. Suddenly, you’re suffering a total lack of confidence. You might give up on trying to improve your finances altogether. But what if you set a goal of improving by just 1%? It’s a small enough goal that you’re sure to reach it. And each time you do, you build confidence in yourself. You begin to see yourself as someone who follows through on their goals. And then, when you do start to set bigger goals, you feel more confident in your ability to meet them.
5. Talk about money
Money has historically been a bit of a taboo subject, especially for women. In fact, you might have been raised to believe that it was rude or inappropriate to talk about money. But this line of thought leads us to believe that money is, for some reason, shameful. And how can you have confidence in a part of your life you’ve been led to believe should be surrounded by shame?
The more you talk about money, the more comfortable you’ll feel talking about it — and therefore, the more comfortable you’ll feel with money overall. Normalize talking to friends and family about financial goals and financial struggles. You’ll see that you’re not alone, and you’ll suddenly find yourself with an emotional support system for financial topics.
6. Seek advice from an expert
Financial confidence isn’t necessarily about knowing everything there is to know about money. In fact, some of the most financially confident people outsource parts of their money management to people they know are experts in the field.
Think about the topic of investing. Maybe you’ve thought about opening a brokerage account and have some financial goals that investing could help you reach. But you don’t know where to start, so you put it off. This lack of action makes you feel even less confident.
But what if, instead, you hired a financial advisor who was an expert on the topic of investing? You don’t have to know everything about investing and don’t have to do the work yourself. But knowing that your investments are in the hands of a professional will make you feel more confident.
7. Build an emergency fund
Research has shown that fewer than half of Americans could cover a $1,000 emergency. And when you can’t pay for an emergency, you instead spend your life in fear of having one. Having an emergency fund in place will boost your financial confidence and allow you to focus on other things.
8. Find the right tools
Finding the right financial tools is one of the cornerstones of building financial confidence. Ruzwana partnered with Personal Capital to help educate women around the world on the importance of financial confidence and empowerment.
“When you have a plan, you remove financial anxiety and replace it with confidence,” Ruzwana shared.
You can help set your plan with tools like the Personal Capital dashboard, which allows you to:
- See all of your financial accounts in one place
- Plan for retirement in a variety of scenarios
- Budget and save for your short-term and long-term goals
- Analyze your investments, and ensure you aren’t getting hit by hidden fees
Confidence starts with having a plan. Consider mapping out yours today.