SWOT analysis is a well-known tool for strategic thinking that’s widely applied in many endeavors. The appeal lies in its simplicity and effectiveness. You draw up a matrix of strengths, weaknesses, opportunities, and threats, start filling it out and come up with action plans to address the items listed.

And for personal finance, SWOT analysis can be particularly useful. It draws attention to the contrast between strengths, such as your ability to hustle and earn money, and weaknesses, such as poor spending habits or debt management.

But while this tool can jump-start positive reforms in your money management, relying on it will only get you so far.

Biases and Limitations

Creating a SWOT matrix for financial matters requires you to separate various factors along two axes. One is positive versus negative. The other is internal versus external.

This generates the method’s characteristic four quadrants. Strengths are at the overlap of positive and internal, weaknesses are negative and internal. Opportunities are positive and external, threats negative and external.

The SWOT approach thus has an inherent flaw in that it tends to be vulnerable to our many cognitive biases. For instance, people often skew towards optimism. They excel at identifying personal strengths and financial opportunities. They might overvalue the ability to generate income or potentially gain from an investment while trivializing the impact of debt’s compounded interest, or the risk of the landlord’s increasing rent.

Such flawed thinking is a major reason why 20% of US households spend more than they earn, half don’t have an emergency fund, and debt levels are constantly rising.

Bias also works along the internal-external axis. While people have varying levels of self-awareness, we’re usually much better at listing down personal attributes than accurately evaluating the big picture. We can be blind to our flaws, sure. But we’re even more impaired when it comes to considering multiple outside factors.

If you want to invest in real estate, for instance, you might research to find out what your options are and how much ROI to expect. But there are hidden opportunities you might overlook, such as potentially scoring property deals at a significant discount with home buying apps that match listings before they hit the market.

Technology can also help you find out which stores are selling the same items for lower prices, or where your financial habits are falling into negative patterns. The bottom line is, a SWOT analysis works by mapping out what you know, and what you know is both limited and highly subjective.

Diminishing Returns

The value of SWOT analysis for your money matters is tied to self-improvement. It’s a great way to heighten your self-awareness. As you reflect on the factors you’ve listed, even with a bias towards the internal and positive, you’ll inevitably develop a tight focus on things you can control. Those include better money habits, increasing your financial literacy, and developing personal discipline.

These benefits shine when it comes to straightening out a messy financial picture. Over time, sticking to your action plans can clear your debt and minimize unnecessary spending.

But the more you revisit and refine a SWOT-based approach, the more you’ll encounter diminishing returns. What gets you out of trouble isn’t necessarily the same thing that builds wealth.

Shifting Towards Connections

How do wealthy people seem to know where to place their money to maximize ROI? How do they spot trends before the majority, or pick the right time to make an exit?

Luck certainly plays a role, and so does the ability to take greater risks by absorbing any potential losses. But consistently building wealth isn’t something people do blindly. It doesn’t happen by accident. There’s an element of deliberate strategy involved.

The common theme among the self-made rich is their intentional relationship building. They recognize that wealth isn’t built in a vacuum of self-improvement and personal finance management.

Your connections are the people who will alert you to opportunities and threats you’d otherwise never perceive. They’re the ones who can knock you off the pedestal of overconfidence and point out flaws you’re blindly ignoring. But that only happens if you focus on building relationships with quality people versus the ones that bring negative qualities into the equation.

Bolstering your network isn’t easy. That’s why people with low incomes tend to dismiss its importance, and only 17% make any effort in this area. It takes time and energy to reach others and engage with them in a thoughtful, meaningful, and sustained manner.

But without enriching your network, your personal finances will remain a strictly personal endeavor. They will be limited by your personal biases, and your ignorance of things that could undermine your success, or ways to improve your fortunes. It doesn’t have to be that way if you can move on from SWOT analysis and its personal focus, and start expanding quality relationships.


Greg Kononenko
Greg Kononenko

My name is Greg Kononenko and I am a full-time online blogger and owner of Dad's Hustle. I'm a dad, and my passion is to help other mums and dads to start their own "hustle" and improve the financial future of their families.

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