Understanding Your Relationship with Money: Exploring Different Perspectives
Money is a universal part of life, but the way individuals relate to it can vary dramatically. Some people see it as a tool for security, others as a means to freedom, while some may even view it as a source of anxiety or stress. Understanding your relationship with money is key to managing your finances effectively and achieving financial well-being. In this blog post, we’ll explore what financial wellness is, four common relationships with money, the pros and cons of each, and offer tips for evaluating your own financial mindset.
Financial Wellness:
Financial wellness is the state of having control over and a good relationships with your finances by:
1) having the skills and confidence to make and manage financial decisions
2) aligning your spending, saving, and investing habits with what matters most to you
3) having low or reasonable debt
4) saving money to meet your goals
5) having a safety net
6) having none or limited stress about money
Common Relationships with Money:
What type of relationship resembles the most your relationship with money: the saver, the spender, the avoider or the investor? Knowing this relationship helps you to understand why you do what you do, helps you to assess what is working for you and what you would like to change. Your relationship to money may have been formed a long time ago and it might be time to see if these habits and attitudes are in line with your current beliefs and goals.
The Saver: Security and Stability
Characteristics:
Prefers to save money rather than spend it.
Feels secure with a strong emergency fund.
Often focused on long-term financial goals like retirement or buying a home.
Pros:
Provides a strong sense of financial security.
Reduces stress associated with unexpected expenses.
Helps build wealth over time through compound interest and investments.
Cons:
May miss out on enjoying life in the present.
Can lead to overly conservative investments, limiting growth potential.
Risk of developing a scarcity mindset, fearing to spend even when it's appropriate.
Tips for Savers:
Balance saving with enjoying your money by budgeting for discretionary spending.
Consider diversifying investments to grow your wealth more effectively.
Reflect on whether your savings goals align with your current lifestyle and future aspirations
The Spender: Enjoyment and Experience
Characteristics:
Finds joy in spending money on experiences or material items.
Values living in the moment and enjoying life now.
Often motivated by instant gratification.
Pros:
Can lead to a fulfilling life full of rich experiences.
Supports the economy through consumer spending.
Enhances quality of life with immediate rewards.
Cons:
Risk of accumulating debt if spending exceeds income.
May struggle with long-term financial planning.
Potential for guilt or regret if purchases don’t bring lasting satisfaction.
Tips for Spenders:
Set up a budget that allows for both spending and saving.
Reduce impulse buying, by taking a moment to ask yourself some questions before purchasing, like asking what need you are trying to meet and if you are using buying as a coping mechanism?
Use cash or debit cards to limit overspending.
Reflect on whether purchases align with your values and long-term goals.
The Avoider: Anxiety and Neglect
Characteristics:
Tends to avoid thinking about or dealing with money.
May ignore bills or financial statements.
Often feels overwhelmed or anxious about finances.
Pros:
Can avoid the stress of financial details in the short term.
May have a simpler lifestyle with fewer material concerns.
Sometimes aligns with a minimalist or anti-consumerist mindset.
Cons:
Financial neglect can lead to serious consequences, such as debt or poor credit.
Lack of financial planning can jeopardize future security.
Anxiety can worsen over time as financial issues compound.
Tips for Avoiders:
Start small by addressing one financial task at a time.
Seek help from a financial advisor or use budgeting apps to simplify management.
Consider therapy or financial counseling if anxiety is severe.
The Investor: Growth and Opportunity
Characteristics:
Focused on growing wealth through investments.
Enjoys researching and analyzing financial opportunities.
Often willing to take calculated risks for potential rewards.
Pros:
Can lead to significant wealth accumulation over time.
Encourages financial literacy and proactive money management.
May offer financial independence or early retirement.
Cons:
Risks associated with market volatility and investment losses.
Potential for overconfidence or risky behavior.
Requires time, knowledge, and ongoing management.
Tips for Investors:
Diversify your investment portfolio to mitigate risk.
Stay informed about market trends, but avoid impulsive decisions.
Align your investment strategy with your long-term financial goals.
We reviewed 4 relationships with money, for an expanded view check out this article on 7 money personality types.
Exploring Your Relationship with Money
Understanding your relationship with money is a personal journey that requires introspection and honesty. Here are some steps to help you explore and improve your financial mindset:
Journal Your Thoughts: Write down how you feel about money, including any fears, hopes, or experiences that shape your views. This article in Forbes, provides some questions to ask yourself:
Where do my money values come from?
Does money make me feel confident or insecure?
Do I have a history of making good financial decisions, and if not, why?
Am I hesitant to take action when there are issues regarding money?
Am I impulsive with money, or do I have discipline to say no?
Do my children have good values with money, especially if they will inherit it from me?
Track Your Spending: Keep a record of where your money goes each month to identify patterns and areas for improvement.
Set Clear Goals: Define what you want to achieve financially, whether it’s saving for a major purchase, paying off debt, or investing for the future.
Seek Professional Help: A financial advisor or counselor can provide guidance tailored to your specific situation.
Educate Yourself: Read books, take courses, watch videos or follow financial blogs to build your financial literacy.
Characteristics of Financial Wellness
Below are different characteristics of financial wellness, assessing what aspects you do and which one’s you would like to improve, with or without help, can be important in taking steps towards financial wellness.
Budgeting and Planning:
Regularly tracking income and expenses to maintain financial stability.
Having a clear, realistic budget aligned with personal goals.
Emergency Savings:
Maintaining an emergency fund to cover at least 3-6 months of living expenses.
Debt Management:
Keeping debt at a manageable level and making consistent progress toward repayment.
Avoiding high-interest debt that can strain finances.
Investment and Retirement Planning:
Investing in long-term assets or retirement accounts to secure future financial well-being.
Actively saving for long-term goals, such as retirement, education, or homeownership.
Financial Confidence:
Feeling empowered to make informed financial decisions.
Knowing how to access resources or advice when needed.
Risk Management:
Having insurance policies (health, life, property) in place to protect against unexpected financial risks.
Living Below Means:
Spending less than one’s income to create savings and investment opportunities.
Goal Setting:
Clearly defining and regularly reviewing short-term and long-term financial goals.
By understanding and improving your relationship with money, you can make more informed decisions, reduce stress, and ultimately achieve greater financial well-being. What are your thoughts? How do you feel about your relationship with money? What is working for you? and What would you like to explore?
I am a saver, risk adverse investor who utilizes a financial advisor, a believer in donating to causes & others with time and money, content with minimalism but willing to spend money on education and travel. Fear of not having enough money or not being prepared for a “rainy” day is an attitude I adopted from my upbringing. It was further reinforced when I didn’t make a lot of money after university and that scared me. This fear means I can often look to those around me to “splurge” when I don’t. I wish to change that fear and have a heathier relationship to money.
Though I want to have control of my finances, I have some issues with how much influence the concept of money has. I don’t like how much we view different aspects of life through the lens of money, to me it taints the value of a human being for their essence as we can often merge a person’s economic value with their value as a human being. When community is viewed only through the value of money, then the complexity and meaning of community is diminished.
Money helps us navigate modern life, if we invest in a healthy relationship with money then it can be utilized without controlling us. What do you think? Share in the comments below.
