Finance is NOT about the numbers, Knowledge and Application


I am always on the quest for knowledge. I usually want to know everything about a topic. Doing research is pure bliss. Over the years, however, I have come to realise in a very poignant way that knowledge without application is useless. Like many, I may know something intellectually, but never really put it into practice.  For me, it’s been being more mindful. I have studied mindfulness and its effects on the body and mind. I know it is something that I should be doing and I know only good can come of it, but do I practice it? Not as regularly as I should. Having the knowledge is great, but it is really useless if I don’t apply it.

I truly believe that many of us instinctively know what we need to do. The “secret” formula I gave you before is one that you already know. The question is, do you do what you’re supposed to, knowing that it will be to your benefit? Many people understand that amassing wealth requires savings and disciple when it comes to spending. As adults, we all know the difference between needs and wants. We all know that we have to prioritize in order of importance when making everyday purchasing decisions.  How many follow us actually do this and do so consistently?

Case in point is a budget.  Having a budget allows us to keep on course. It is our navigating system to reaching our financial goals.  During my consultancy, I have found that my clients were aware of the need for having a budget and they all agreed that it was important to have one. I helped many of them craft beautiful, functional and executable budgets, only for it to be saved on their computer or phone and never be implemented.

So why it is that even though we all know what to do, we still don’t follow through. We turn to the field of cognitive psychology-more specifically cognitive dissonance for some answers. Psychologist Leon Festinger in his book, A Theory of Cognitive Dissonance, noted that people have an internal need to ensure that their beliefs and behaviors are consistent. When they are not it leads to disharmony, which people attempt to avoid. We then find a way to reframe the decision so that it is consistent with our initial belief. For instance:

“The person who continues to smoke, knowing that it is bad for his health, may also feel (a) he enjoys smoking so much it is worth it; (b) the chances of his health suffering are not as serious as some would make out; (c) he can’t always avoid every possible dangerous contingency and still live; and (d) perhaps even if he stopped smoking he would put on weight which is equally bad for his health. So, continuing to smoke is, after all, consistent with his ideas about smoking.”  (Festinger, 1957)

Many of us fall into this frame of thinking, whether it is Buyer’s Stockholm syndrome (where we rationalize making bad choices, usually expensive ones) or current moment bias, where people tend to prefer pleasure in the current moment and dealing with the pain later. Current moment bias was demonstrated in a study done by Read and van Leeuwen in 1998. The study showed that when people had to make choices about their snacks for the week, 74% of participants chose fruit instead of chocolate. However when the snack choice was for the current day, 70% picked chocolate.

The reason for the contraction in belief and behavior may be because many of us have a hard time seeing ourselves in the future. So changing a habit or behavior today doesn’t seem that urgent. So knowing that you have to stick to a budget may seem important over the long run, but not today when you’re out shopping. It doesn’t seem like the end of the world if you splurge a little.  Too often, one day turns into two days, then three days, then into weeks, then into months, and worse, into years!

Another reason why we don’t put our knowledge into practice may be because we haven’t given ourselves time to digest what we have learned. We read a blog here, we listen to talk there, and we get information from the news, from friends, from experts. When do you take the time to filter and process?


Here are a couple of suggestions that can help you synthesise what you have learned to avoid cognitive dissonance and current moment bias. Set aside some time after you have read or listen to some information that can really be of benefit to you and:

  • Assess what you have learned about yourself.
      • Figure out your money mindset and personality, where do you stand on this issue.  (See previous post)
  • Assess your ability to do what is required.
      • Can you make and stick to a budget?
      • Can you start saving?
      • What will it take for you to begin?
      • Make a list of the things you know you CAN do and a list of the things you know you need HELP with.  For instance, you can save but you may need help with developing a budget. Or you may need some specific advice on deciding what type of investment to make.
  • Make an implementable TO DO NOW list. Emphasis on the NOW! Start with your top three or four actions you can take NOW. For example, I can
      • Open up a savings account today and start putting aside some money ( regardless of the amount)
      • Start with a debt repayment plan
      • Cut back on non-essential spending, such as coffee, reduce eating out and prepare meals at home (this one has both financial and health benefits!)
      • Explore how I increase my earning capacity -start looking at options for career advancement.
  • Finally, surround yourself with likeminded individuals. If you are in an environment that is supportive of your goals your chances of success will significantly improve.

Financial success requires substantial behavioral changes and it affects many facets of your life. No one can determine where, with whom and how you have to be. Only you can do that. The last suggestion is usually one that is very difficult. In no way I am saying that you should eliminate people from your life because you want to start building your net worth, but you will have to consider how your relationships affect you financially and what you can do to mitigate the effects if need be. Only you can make that determination.

I would love to hear what’s on your TO DO NOW list.

Dr. M

Published by Dr. M Finance Blog

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