Penny pincher or wild spender - How do you think about money?
Are you penny-wise or dollar-foolish?
Experts say there’s a psychology to how we view money, built on individual experiences and personalities, affecting how we view and use our wealth. This psychology can cause people to be prudent spenders or lavish shoppers – and everywhere in between.
Money is more than math and spreadsheets, says Vanessa Stockbrugger, founder of Womencents.
Some of us may place an imbalanced amount of energy and thought on a store sale but renew loans without considering options or leave large sums sitting in a minimal interest bank account, Stockbrugger says.
Guilt over past financial decisions isn’t usually very useful. Focusing on what you can do next is key.
Why? Taking advantage of a sale is a simple decision, but the others are more complex.
“Life gets in the way. When we’re tired, it’s harder for us to do complex thinking,” says Stephanie Holmes-Winton, CEO and founder of CacheFlo.
She urges awareness and acknowledgement that emotions and levels of energy and fatigue can affect financial decisions.
Know your limits
Accept that emotions play into decisions, but also accept imperfection.
“Guilt over past financial decisions isn’t usually very useful,” Holmes-Winton says. “Focusing on what you can do next is absolutely key.”
She’s developed the Money Mindset quiz to help gauge financial temperament and tendencies based on personalities. As emotions can also cause overspending, Holmes-Winton recommends creating weekly spending limits. Besides clearly defining how much can safely be spent. These limits make it easier to curb impulse buying, as you’ll no longer need to rely on willpower alone in moments of temptation.
Make a plan
A lot of financial stress is derived from not knowing what decisions to make now with an eye to future goals, Stockbrugger explains.
Planning can help alleviate stress. Start simply by first understanding your money position: what are your assets, debts and expenses?
Any plan will be imperfect and needs to be flexible. The solutions for one person may not work for another. Develop a financial plan and saving solutions that work for you.
Separate farm and personal finances
Holmes-Winston also stresses the need to separate farm finances from personal ones.
Many tend to believe the finances will all work out in the end, but separation makes a big difference in behaviour.
“It makes it easier to tell, ‘how much money do I actually have to make this decision with?’ When it’s all co-mingled, it’s really hard to see,” Holmes-Winston says.
The psychology of money can lead us to ignore important but complex decisions and overspend. Acknowledge financial decisions are usually based on emotions, set spending limits, separate personal and farm finances and plan by laying out what you have, what you owe and where you want to be.
Article by: Richard Kamchen