In the 1980’s, a few researchers came up with a proposed idea that they thought would help reduce crime in the U.S. They called that theory ‘Broken Windows’. The idea was fairly simple, a broken window is a sign of a community that has been neglected. In turn, a community that has been neglected, is more likely to have an increase in crime rate. The hypothesis was if police could fix the small problems (i.e. broken windows), the big ones would disappear.
This idea came from a research experiment in 1969 where a psychologist abandoned two cars on the street. One in a very poor, crime filled neighborhood in New York. The other in a upscale neighborhood in Southern California. Within 10 minutes of leaving the car in the poor neighborhood, people began taking things of value such as parts. Shortly thereafter, people began to vandalize the car and eventually smashed the windows. Yet for more than a week, the Southern California vehicle remained untouched.
The psychologist then went and smashed the California car windows himself. Once the windows were smashed, the car was fair game for criminals. The same events transpired that went on in New York. It was stripped to pieces and completely destroyed. This led to a theory. Once disorder begins, things can can out of control.
With the way my weird brain works, this experiment reminded me of money.
You see, many of us, including yours truly, have habits that we have formed with money. These habits may be small, but can affect the overall big financial picture. As I have said many times, money is about 80% psychological, and every choice we make has another alternative. If you are not getting what you intend out of your money, it is time to fix the “broken windows”.
I work with a lot of people looking to boost their financial situation by setting up budgets or investments. I love doing this because I can extend a helping hand to someone who cannot figure out where they went wrong. What I find, is many times people have a few small issues that are leading to much bigger problems.
Most people know their one ‘vice’ that they want to focus on.
“I spend too much on groceries. If I just spent less, I could save money.”
“I need to stop going out so much with friends, I spend $200 every weekend.”
“I buy too many clothes. Many I don’t even wear.”
These are our financial broken windows. The issues that seem like they are small, but if fixed, will be of huge benefit to us.
If your broken window is not letting you save money for your future, it needs to be fixed immediately. Do not wait until you’re older and it will work itself out. Time is the most valuable financial asset we have. When it comes to saving and investing, you need to start as young as possible.
The problem with these small issues is they give us a psychological excuse that we do not have to be disciplined when our money is not working in our favor. If you let your brain slip up in one category, it can carry over to another. I see people doing this in other areas of their life. “I’ll just have one cupcake” turns into “I blew my diet for the day, I will eat whatever I want then eat clean tomorrow”. Most of the time you keep up the same habit and it never gets resolved. The same goes for your finances. “I already spent too much on restaurants, what would one more meal hurt?” Nip this in the bud, because it can grow to a larger problem.
Many people will tell you not to sweat the little things in money and worry about the big things such as growing your income. I could not agree more, but because psychology plays such a big role, your small bad habits will grow into larger issues. Take spending for example. If you begin to overspend every month, you have now accumulated a small chunk of debt. That debt grows larger and larger over time, until you realize you have a major problem.
For someone starting out, if they don’t sweat the basics, they will never make it to the big leagues.
How Do I Fix My Broken Windows?
If you are someone who does not keep a budget, then start here. This will give an idea of Who/What/Where your broken windows are in your finances. Once you begin budgeting for a few months, it will be very easy to see the broken windows and put a stop to them before they get worse.
Sometimes The Windows Are Not Broken
If you already keep a budget and notice you overspend in a specific category regularly, then you may need to raise the amount you contribute to that category. Your budget shows what you truly value. This is especially true if you have tried many times in the past to spend less on the category but have failed. Just move some money over from another category.
When I started my tracking my money, my goal was to save as much as I possibly could. So naturally I did not add enough money in just about every category. In turn, I realized I do value eating at restaurants, or buying new kicks. I adjusted where my values were, and the stress melted away. If I have to retire one year later in order to be happy for the next 20 years, I will take the latter any day of the week.
So if you find you have some of these issues, see if you can fix it before it gets worse. The last thing you want is the things you enjoy to become stressful every month.
Nobody gets it right the first time. Adjust your priorities, enjoy your life, repeat.
Cheers,
Andrew
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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