What Is Your Financial Personality?
Have you ever wondered why some people are so good at budgeting and managing their finances, while others can’t seem to make ends meet, no matter how much money they earn?
Surprisingly, the way we think about money – along with our past financial experiences – plays an important role in how we manage our money today.
And while everyone wants to manage their money and financial life in the best way possible, it’s important to understand how you think about money before creating a plan to manage it. After all, if you understand why your attitude toward spending exists, it could help you change the negative habits.
What Is Your Relationship to Money?
We all have a relationship with money, whether it’s good or bad, and that relationship determines what we do with it. Here are four personality profiles that could affect your spending or saving habits:
1. Number Cruncher or Fly-by-the-Seat-of-Your-Pants-Spender?
When it comes to money, people typically fall into one of two categories. They either spend with wild abandon, or they methodically calculate every penny before spending it.
If you’re in the first category, you likely have no idea how much money is in your checking account or how much you owe on your credit cards. You may have a nagging feeling that you’re being reckless with money, but can’t be bothered with the details. After all, life is for living, and if you need to charge a few dinners or expensive outfits to live life to the fullest, so be it.
The number cruncher is a different breed. This person thinks carefully before making every purchase, crunching the numbers to make sure they have enough and that the purchase won’t put them in a compromised financial circumstance. They always have a budget, and it takes A LOT for them to break it.
2. Spender or Saver?
Another way psychology affects your financial health is how you look at spending and saving.
Spenders feel like any new money will burn a hole in their pocket until they can spend it. They crave the feeling that comes with spending money. As a result, they have little to no savings.
A saver, on the other hand, approaches life with one main focus: saving every penny they earn. That results in fat savings accounts and, sometimes, a lack of things they really need.
3. Backward or Forward Thinker?
Another way that your mindset can affect your financial life is whether you look to your past to define your spending and saving habits or you decide to chart your own path. Some people look to their childhoods and remember the way their parents approached money. For example, if your parents were always talking about a lack of money, you may have carried that into your adult life and now treat money as if it will never be enough. (That could make you into an extreme saver who sacrifices the things you need to ensure you have “enough” in the bank.”)
On the other hand, if your parents were freewheeling spenders and you suffered as a result of it (for instance, you didn’t have enough school supplies because they spent the money on a weekend vacation), you may spend excessively trying to make up for what you didn’t have as a child. But some forward-thinking people recognize how their parents’ financial habits affected their own, and they work to overcome the hindrances. This self-awareness leads to a positive change in the person’s financial life.
4. Status or Safety?
Finally, people typically think of money as giving them one of two things: status or safety. If someone seeks status, they will spend their money to buy designer clothes, an impressive car, or a house in “that” neighborhood – no matter how far it stretches the budget or increases their debt load.
Others find safety in having enough money, and they would rather have dollars in the bank than that new designer bag or the high-tech speed boat.
How Can You Change Your Financial Mindset?
After recognizing the psychological state of your financial life, it’s time to take action and correct the spending or saving habits that have been holding you back. Here are some general guidelines that, when held up against the light of your psychological mindset, can powerfully change the course of your financial health.
- Never charge more than you can pay off at the end of the month (decide in advance what you can spend that month).
- Automate your bills whenever possible.
- If you are saving for something specific (Christmas gifts, retirement, a home, etc.), put that money away before spending any discretionary money.
- Create and stick to a budget. Stop telling yourself you will do it one day. Do it now!
- Take the emotion out of money. Use it to either save and invest or purchase the things you want – period.
- Don’t let money define you. Instead, you define what role money will play in your life.
Change Your Money Psychology, Change Your Financial Future
If you think your money psychology is holding you back or keeping you from living your best financial life, it’s time to do a deep dive and figure out what is driving you financially. Is it a fear of being without enough money, or a need to impress your friends and family with the best things money can buy?
Once you identify what’s driving you financially, apply that logic to the tips above and determine how you can follow them. For instance, if you are a freewheeling spender who has never seen the need for a budget, recognize that spending without limits is keeping you in a financial box. To get out of it, you will have to do the one thing that you don’t want to do: create a budget.
Getting out of the psychological mindset that’s been holding you back financially will take work, but the effort will pay off in the form of financial freedom. If you need help understanding your underlying issues and the path forward, call one of our friendly counselors at American Credit Foundation and let them walk you through the process.