Have you ever wondered how people deal so differently with money?
Why is that some people can easily save but others find it quite difficult and end up living paycheque to paycheque?
Like almost everything else in life, your response to money is largely dictated by your personality. Recognizing and understanding your money personality is an important step towards financial stability.
Once you figure out your money personality, you’ll be able to make better decisions in the way you spend, save and invest your money.
N.B. Many people can identify with parts of several of these profiles. The key is to find the type that most closely matches your behavior.
The Spender
Key Characteristic:
- You get an immediate thrill from a purchase. It doesn’t matter if you’re shopping high end or low end. It’s the fun of buying that counts not the price.
- You receive satisfaction from spending money on gifts for others.
- You love to use money as soon as you get it.
- You are not opposed to spending money even before you have it – leading to debt.
- You want to save money, but just simply don’t have any money left to save after shopping.
- You live in the moment and are focused on what’s happening right now, so you’re willing to spend money to make life a blast.
Advice:
- Set limits, before you buy something, give yourself a 24-hour period to think about your purchase and make a rational decision.
- ‘Set it and forget it’. Automate your savings directly from your salary into an account you do not have easy access to. If you can’t access it, you can’t spend it.
- If you have splurged, look back at the emotions you experienced at the time of purchase. Did the splurge make you happy long-term?
Next Step:
Automate your savings to start building an emergency fund and avoid using your credit card for impulse purchases.
The Status Spender
Key Characteristic:
- Unlike a ‘regular’ spender who gets a thrill from any purchase despite the price, your thrill comes from high end luxury purchases.
- It isn’t money that appeals to you, rather the image it can buy.
- You use money to purchase things that will show people how ‘successful’ you are.
- You care enough about what people think that you’d be willing to go into debt to keep up appearances.
- You live large, buying big-ticket items and keep up with the latest everything.
Advice:
- Buying luxury cars or high-end goods doesn’t make you a status spender. It’s your thought process behind acquiring these items that does. When purchasing a new item, think of who you’re buying this item for and whether or not you can truly afford these luxuries. To quote Dave Ramsey “We buy things we don’t need with money we don’t have to impress people we don’t like.”
- Instead of using your money to buy that luxury item to impress your friends, how about you use that money to invest in the company. Think about all the compound interest your money can earn 10 years from now that the item sitting in your closet won’t.
Next Step:
The people who matter appreciate you despite what you wear or drive. Take some time to work on your self-confidence and get to the heart of the matter. If you’re finding it hard to stop cold turkey, try budgeting for your luxury purchases and stick to it! This should help you avoid racking up unnecessary debt trying to keep up with the joneses.
The Hoarder
Key Characteristic:
- You see money as a means to attain security while others view it as a means to buy things.
- No matter how much money you have, you’re always terrified that you’re one purchase, one investment or unanticipated disaster away from poverty.
- You love budgeting and balancing your accounts. In fact, it’s fun for you to see how much savings you’ve accumulated from month to month.
- You’re the person that sneaks their own popcorn into the cinema because you rather save the money.
- You love a great bargain and love to share with friends about your latest discoveries.
- You despise taking risk with your money.
- You’re great at seeking money but overly cautious to let go of it.
- You tend to shy away from splurging on yourself or loved ones.
Advice:
- Being careful with your money is great, and while you have some solid financial habits give yourself the freedom to enjoy your hard-earned money every now and then.
- You’re so risk averse that despite having a lot of money saved up, you’re not really helping it grow. Your money will not be able to keep up with inflation, unless you reap the benefits of compound interest by investing! Don’t store all your money in low-interest savings accounts, or even worse, under your bed.
- Money is not meant to take over your life, it is to be used as a tool to empower and provide freedom. Reach out a financial advisor, this is their expertise, and that should give you comfort. They will give you guidance as to where you are, how much you can invest, spend etc.
Next Step:
Consider a growth mutual fund to invest in which will help grow your money faster.
Once a week, make an impulsive purchase of a good or service that gives you immediate pleasure.
The Avoider
Key Characteristic:
- You are not comfortable with the subject of money stemming from a feeling of inadequacy.
- You lack interest or feel that there are more important issues than money.
- A lot of the time you don’t even know how much you have in your account.
- Planning for retirement feels light years away to you therefore you’re unbothered.
- You have a bunch off unopened bank statement, credit card bills etc.
- You avoid making a budget
- You avoid investing even when you can because it seems like ‘too much’ to handle.
- The terms ‘late payment fee’, ‘past due’, ‘overdrawn account or ‘insufficient funds’ may sound familiar to you, simply because you weren’t paying attention to your account details.
Advice:
- Get informed and take your head out of the sand. You need to know what’s going on with your finances. Ignorance is only bliss until your car is being repossessed because you withdrew too much money from the account you didn’t know the balance of. You’re missing out on opportunities to lay the groundwork for a secure future.
- Since you don’t like thinking about your finances, automated payments, savings and investing will be your best friend. The onus can’t be on you to set aside money each month. Seek a financial advisor if you need help determining how much to allocate in the initial step.
Next Step:
Pick a specific day in the month to open all your bills and check all your account balances continuously. Make a habit of it. Ask a family member or close friend to hold you accountable.
