This page has been set up as a blog with new material being added each Monday. How we view money has an impact on how we handle it: Personally, professionally, entrepreneurially and money-wise. You will see tips and suggestions around the psychology of money. If you like what you read, feel free to bookmark this page so that you can return to it on a regular basis. And for now, you can scroll down to learn about:
Many of us have jokingly described shopping as retail therapy. Yet, the label may be more apt than we realise.
They say that when the tough get going, the tough go shopping.
We often use shopping as a means of making ourselves feel good. Yet, how many garments do we have hanging in our wardrobes? Garments that we may have never worn? How many shoes? How many gadgets have we purchased? Maybe we still have gadgets stored in their original packaging. Perhaps we have had them tucked away in the garage, laundry or shed.
Many of us are aware of how we might use food to soothe ourselves if we are feeling lonely, bored, frustrated, anxious or depressed. We may also be using shopping as another means of soothing ourselves. And, if this is the case, then shopping may indeed be a form of retail therapy.
If you don't like the impact retail therapy is having on you, perhaps it is time to declutter your wardrobe, garage, laundry and shed. You can then explore alternate ways of self-soothing, ways that can enhance your health and better protect your wealth.
There is more to investing than just growing your wealth. If it was as simple as that, we would all do our research, find a good investment at a suitable rate of growth, deposit our funds and watch them grow.
But, what else is there? And the answer is our very human psyche. Money has come to mean a lot of things to a lot of people. At the very core, money is simply a standardized unit of exchange. But, over the centuries that it has been in use, money has come to mean much more than that. (See next two sections). What is more interesting is that we absorb attitudes to money from our parents as we grow up. We may have heard our parents say something like money does not grow on trees or money is the root of all evil. Perhaps we have heard money is just an idea or we can always make more money. Sometimes it is not that these statements are verbalised, but they are such ingrained beliefs that they are acted upon without question. And, as children growing up in our respective families, we absorb those same ingrained beliefs and act upon them ourselves, equally without question.
Attitudes to money can be formed early in life. Our attitudes can be so deeply ingrained that we may not even be aware we hold them. Until they are challenged in some way. Even then, we may be more aware of our emotions than we are of the attitudes that triggered those same emotions.
Some people regard money as a form of security. They may budget and look at ways of doing things frugally. This group of people may get anxious or worry over how they will pay their domestic running costs as well as whether they will have enough money to fund their sunset years. Other people regard money as a means of garnering respect, prestige or power. They may even buy products to enhance their sense of prestige. It may come as no surprise that high income earners regard money as a good thing while those who earn a modest salary are more likely to regard money as the root of all evil.
Money is neither good nor bad. However, how we think about money has a powerful impact on how we treat it as well as how we interact with money. Our attitude to money lends itself to our own unique form of money karma. Money can either fall into our laps, or slip through our fingers.
Attitudes to money itself is an area that is little understood, little discussed and little managed. Yet, those same attitudes can help shape who we are financially - whether we are financially struggling, financially secure or even financially wealthy. Our money goals, if we have set them, may reflect our underlying attitudes. Indeed, our attitudes to money may influence the heights (or depths) to which we set our financial goals. If we hold a money attitude along the lines that money does not grow on trees for instance, we may set financial goals that reflect a position of financial struggle; goals that enable us to keep our heads above water. Just. By contrast, if we hold a money attitude along the lines that money is an idea and merely reflects all the good that we contribute to the world, then we may set goals that reflect financial abundance.
I therefore invite you to consider your own money attitudes. Here are some questions for self reflection to get you started:
If you want to discuss your answers or learn more about your underlying psychology around money, feel free to book a consultation with Dr. Abramson. Until next we meet on this platform, enjoy your discoveries around money and what those discoveries can do for you!
What happens when two people decide to live their lives together. And, one is a great spender while the other is a great saver? Perhaps they live in a single-income household where one is the official breadwinner while the other keeps the family home. More often than not, it is the one who works full-time that is more financially conscious than the one who stays at home.
This can set up uncomfortable dynamics within the life partnership. The one who works is cast into the role of being mean and tight-fisted while the one who stays at home is cast into the role of being irresponsible. It is natural to be more conscious about your hard-earned dollars if you are the one generating the income. It is also natural to be more focused on the products and services you buy when you are the one who stays at home.
This dynamic may also play out in dual-income households, irrespective of whether one member of the life partnership earns significantly more than the other. So what else might be going on? They say that opposites attract. While such differences might be cute when dating, it can become frustrating after years of living together. Underlying it all, may be a difference in financial goals, goals that have not been discussed and are therefore not shared. To the extent that you might sit down with your life partner and start discussing financial goals, you can begin working towards common financial goals. Then, you may discover that your life partner becomes more accommodating or responsible while you both strive towards your shared financial goals.
The dynamic discussed in previous section may also play out in the retirement years. You may think that you both have shared lifestyle and financial goals. And, yet, there may be something that you do, or your life partner does, to indicate otherwise. If you see signs that goals and aspirations you both thought were shared are somehow being blocked, it may be time to sit down with your life partner and talk it out. Behind the blockage may be some value, belief or difference of opinion about how your retirement years should be lived. By identifying those differing values, beliefs and opinions, you can then find a shared position you can both be comfortable with. From there you can both set common financial and lifestyle goals that are genuinely shared and that can take you through the wisest stages of your life partnership.
Retirees who live alone may need to give themselves permission to fully enjoy their lives, be it travel, physical activities, intellectual stimulation, hobbies and interests or contributions to the next generation. Living alone means not having to collaborate with anyone else on how you live your life. However, it can also mean balancing your own wishes with those of your children and grandchildren (and perhaps even great-grandchildren) It is therefore worth your while to take stock of what you enjoy doing and what you can do, given your financial position. At the end of the day, you want to go to bed with a smile on your face. Each and every day.
Would you like to have a banana or chocolate in two weeks time? How about now? Based on research by Benartzi and Thaler, it would seem that most people prefer to have the banana in two weeks time (with the benefits of health coming to mind) but the chocolate now (for the joy of self-indulgence).
What happens when we translate bananas versus chocolate to money matters: Buying versus saving? If asked to buy or save now, that same research suggests we choose to buy. Perhaps we may even speak to how much our costs are at the moment as a way of noting why we cannot afford to save anything now. In many ways, an inability to save may feel quite real in that we may be spending as much, if not more, than what we currently earn, leaving nothing aside to be saved.
It may come as no surprise to find that the same research shows that when asked about whether we prefer to buy or save in two weeks time, we prefer to save. (We know that saving is good for our financial health).
What is interesting is that when we pay by cash, Benartzi and Thaler tell us we feel the pain of paying for something much more acutely than if we pay by credit card. Similarly, the pain of paying is more keenly felt when we pay at the time of purchase compared to when we pre-pay (e.g., conferences, workshops, airfares, accommodation) or pay later (e.g., monthly credit card debt repayments). The pain of paying is also more acutely felt when we see how much we are consuming.
So, if you want to better control your spending: You can pay in cash at the time of your purchase and pay attention to how much you consume. If you want to enjoy your purchases more, you can pre- or post- pay for your purchases by credit card.
And, how might we start saving? Or saving more? Irrespective of whether you currently spend more, all or less than your current earnings, it can be useful to examine each of your typical expenses with a viewing to seeing what can be dropped. For remaining expenses, you might continue by examining whether there are more economical ways of obtaining that same product or service. This may leave you with some (or more) discretionary funds for your current level of income. And, if so, feel free to divide your discretionary funds between pleasure and savings. The actual ratio between pleasure and saving is yours to decide.
By keeping your expenses tight, you will find that you will have a progressively larger pool of discretionary funds as your earnings grow. If you keep to the same ratio of discretionary spending and saving, you will find that you can increase the dollar-amount of how much you regularly save over time. It also helps to know what you are saving for. And, the reason for saving may represent future spending capabilities in the form of investing (own home, investment property, shares, other income-generating assets), rainy day funds, travel and the like.
They say that the best time to plant a shade tree is 20 years ago. The next best time to plant that tree is today. In order to enjoy the fruits of your financial labour, you need to prepare the groundwork today. By introducing the right financial habits into your life, you will find it easier to reach your financial goals. Here are some healthy, helpful financial habits to think about:
So, what is your money karma? And what can you do to develop your money karma in a healthy, helpful way?
Our newsletter, Money Quarters, provides articles, quick tips, food for thought to help you reach your full potential: Money-wise. If you would like your own complimentary subscription to this newsletter, feel free to email your request to Dr. Rachel Abramson . You can also follow Dr. Abramson on Facebook or Twitter.
The ideas expressed in this blog take a psychological perspective on money and finance. Similarly, the ideas expressed in the Psychology of Investing blog take a psychological perspective on share investing. The ideas expressed in both blogs should not be construed as financial advice, but instead, provide food for thought on how your own psychology may have an impact on your wealth (short-term, medium-term and long-term). You would be well-served to see a shrewd accountant if you would like financial advice pertaining to your own circumstances. You can book an appointment with us, if you would like advice managing your own psychology with money or investing.
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