There is no one-size-fits-all strategy on how best to manage your money, despite what some personal finance experts might claim. After all, personal finance Personal. We each have unique values, personality traits, and life experiences that shape our relationship with money, which means that creating an effective personal finance plan is often less about understanding finance and more about understanding yourself.
“We all think we need to know more about money, and we can, but most of us kind of know what to do,” Lindsey Brian Budvin, a financial therapist, told Big Think.
The intuitive goal of personal finance is simple enough: manage your money so that you will be able to achieve future goals. Even more complex is knowing how to modify the behaviors and emotions that prevent you from setting yourself up for financial success.
So, how can you improve your personal finance? For financial psychologist Dr. Brad Klontz, one of the first steps is recognizing the nature of your relationship with money.
“You have to dive into your own psychology,” he told Big Think. “You have to understand why you think the way you do about money, and how that manifests itself in your life, in order to change it.”
Watch our full interview on money figures:
Identify common beliefs about money
in 2011 study Posted in Journal of Financial TherapyDr. Klontz and his colleagues surveyed more than 400 people about their beliefs about money. Participants were asked to rate their level of agreement with statements such as:
- Money is what gives meaning to life
- People get rich by taking advantage of others
- People should work for their money and not get financial aid
- You should always look for the best deal before buying something, even if it takes longer
The study, along with subsequent research, led the researchers to uncover four broad patterns of belief people have about money. Researchers have called these beliefs “money texts.”
The study noted, “Critical texts are often at the root of money troubles, and when associated with emotionally charged or traumatic events, these belief patterns can be very resistant to change.”
Avoid money: This pattern describes a general belief that money is bad. People who score high in this category may believe that there is a virtue in living without money, that the wealthy are greedy or immoral, or that they do not deserve the money themselves. This group may also have trouble overspending and sticking to a budget.
“Now, not surprisingly, if you have a negative attachment to money, it will have a negative impact on your financial results,” Klontz told Big Think.
Worship money: In contrast to avoiding money, money worship is people putting money on a pedestal, believing that it nurtures happiness and solves most of life’s problems. People in this group tend to be younger, have relatively low incomes and net worth, and carry credit card debt.
financial vigilance: This tends to be the financial scenario for the extremely wealthy. People in this group appreciate the bargain. They usually do not spend beyond their means, focusing on protecting their capital. But while saving and economics can be positive, being overly vigilant can cause people in this group to experience financial anxiety or a reluctance to spend at all.
“What’s the point of all this if you’re still living a life of deprivation?” Dr. Clontz told Big Think. “You don’t deserve that – nobody deserves that.”
money caseThis is where people equate their self-worth with their net worth, Dr. Klontz told Big Think. People in this group like to display their wealth outwardly, and are likely to spend a lot, gamble, and be financially dependent on others.
“Trying to find a balance around all of these beliefs is very important, not only for our mental health, but for our financial health,” Dr. Klontz told Big Think.
Personality traits and financial behavior
It can be tempting to explain someone’s financial behavior by referring to their morals or their level of financial literacy. But while these factors are important, research indicates that our personalities and even the structures of our brains play a large role in determining how we make financial decisions.
For example, a 2022 study published in the journal NeuroImage It was found that it could reliably predict an individual’s risk tolerance by examining an MRI of his or her brain.
We can see the structural differences in the brain, specifically in the regions […] Dr. Joseph Kabel, a neuroscientist who worked on the 2022 study, told Big Think:
Other studies have linked certain personality traits to specific financial behaviors. For example, Research It has been consistently found that the personality trait of conscientiousness correlates closely with healthy savings behaviors, timely debt repayment, and No financial problems.
Building a personal finance strategy
You can’t choose your personality traits, but you can choose to seek a better understanding of your relationship with money. One solution is to consult a financial planner who is willing to help you develop a customized strategy.
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Financial therapist Dr. George James told Big Think. “I think really good financial planners, they actually give personality tests to really check who you are, to see where you stand, how you handle risk, and from there they tailor their advice or the information they share with you.”
Lindsey Brian Budvin suggested overcoming bad financial habits through automation.
“I’m a big fan of automation,” she told Big Think. “I automate paying my bills, saving money in savings accounts, and investing in retirement accounts. If it were up to me to manually move money around every now and then, there’s no way I could do it, or I’d do it much less often than I should.”
Like other types of relationships, our relationship with money can be very emotionally charged. That’s why it’s so important to make an honest assessment of how your unique personality shapes the way you manage your money.
“What tasks do you put off and what feelings get in the way of doing that task?” Lindsey Brian Bodvin said. “Start there.”