Let’s imagine two people: Benny and June. They’re both in their mid 30s, both have mid-level jobs that pay about $40,000 a year, and both have a little debt in the form of student loans, a mortgage, and a couple thousand in credit card debt.
Benny is constantly stressed out about money. He struggles to make ends meet every month, doesn’t have a savings plan, and has no idea where his money is going. He doesn’t think there’s any way out of his troubles unless he gets a huge raise at work or wins the lottery.
June, on the other hand, has the same financial obligations, but she feels pretty confident about her money situation. She puts a little money in savings every month, even though it’s less than she’d like, and she has a plan to pay down her credit card debt. She knows she’ll be in a much better financial situation once she gets those paid off in another six months or so.
So what’s the difference between these two?
You might think it’s that June has a plan and Benny doesn’t, but it’s actually more basic than that. June believes she has control over her situation while Benny doesn’t. June has an internal locus of control, while Benny has an external locus of control.
What is Locus of Control?
In psychology, locus of control is considered an important aspect of personality. The concept was developed originally Julian Rotter in the 1950s. Locus of control refers to an individual’s perception about the underlying main causes of events in his/her life. Or, more simply:
Do you believe that your destiny is controlled by yourself?
Do you believe that your destiny is controlled by by external forces (such as fate, god, or powerful others)?
Do you think your money situation is a result of your circumstances, or instead, a result of your actions and behaviors? Your answer to that question is likely to predict your progress to wealth, your earning power, work satisfaction, stress levels, and how high you’re likely to go when you set a goal for yourself.
A locus of control orientation is a belief about whether the outcomes of our actions are contingent on what we do or on events outside our personal control.
- External Locus of Control – Individual believes that his/her behavior is guided by fate, luck, or other external circumstances: “I’m late today because traffic was horrible!”
- Internal Locus of Control – Individual believes that his/her behavior is guided by his/her personal decisions and efforts: “I’m late today because I didn’t leave my house soon enough.”
In general, it seems to be healthy to perceive that one has control over those things which one is capable of influencing. Externals can lead easy-going, relaxed, happy lives—because they perceive no direct influence over their world, they are content to “ride the wave” where ever it might take them. Overall, however, research has found that people with a more internal locus of control seem to be better off.
Those with an internal locus of control:
- Are more likely to take responsibility for their actions
- Tend to be less influenced by the opinions of other people
- Often do better at tasks when they are allowed to work at their own pace
- Usually have a strong sense of self-efficacy
- Tend to work hard to achieve the things they want
- Feel confident in the face of challenges
- Tend to be physically healthier
- Report being happier and more independent
- Often achieve greater success in the workplace
Those with an external locus of control:
- Blame outside forces for their circumstances
- Often credit luck or chance for any successes
- Don’t believe that they can change their situation through their own efforts
- Frequently feel hopeless or powerless in the face of difficult situations
- Are more prone to experiencing learned helplessness
Locus of Control and Money
You can probably see by now that those with an internal locus of control are more likely to have success with money.
Because someone with an internal locus of control is more likely to take responsibility for their choices, they’re also more likely to put a plan into place to continue to make better choices. Someone with an external locus of control tends to focus on how his situation is not his fault, and can feel powerless to change the situation, so he’ll never even make a plan, let alone work one.
With money, it’s all about the long game, so understanding how your perceptions affect your decision making is key. Whether you find you tend to be internal or external now, the good news is that you can switch to more of an internal focus over time. Try these tactics:
- Accept this premise: You always have a choice. It might not be a great one, but there is ALWAYS a choice. You’re not trapped or locked into one action, and your situation does not depend on luck. If you need some inspiration,“The Millionaire Next Door” is full of good examples of people who overcame their “luck” in life to accumulate substantial wealth.
- Brainstorm alternatives. Whenever you feel like you have no choice, make it a game to find another option. Write without evaluation, and enlist the help of someone who can help identify options without telling you what to do. Don’t censor yourself; put down any idea you can think of, even if it sounds crazy. Get all options on the table before deciding on a course of action.
- Practice. Try this with low value issues first to develop the “options” muscle. For example, if you drive the same way to work every day, make a list of three different routes you could take and try them. Or try public transportation or car pooling. Prove to yourself that you have options in just about every situation.
- Notice self talk. If you tend to speak in absolutes, stop. Listen to how often you comment negatively versus positively. Phase out phrases like, “I have no choice” and “I can’t…” Rephrase when you catch yourself with “I choose not to,” or, “I don’t like my choices, but I will…”
I’d be fascinated to know whether you think you have an internal or external locus of control. How do you know? Let me know on Facebook where we can continue the discussion.
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