The psychology of money is the study of our behavior with money.
Success with money isn’t about knowledge, IQ or how good you are at math. It’s about behavior, and everyone is prone to certain behaviors over others. Once you become aware of your tendencies, you can harness the power of your own mind, your thoughts and your will—and you can literally change your life.
I’ve been studying the psychology of money, and over the last decade I’ve seen it play out in real life while coaching people with their money. This stuff is powerful, so I want you to dig in with me.
Self-worth awareness’s as a tool. The more you understand how the mind functions, the more you’ll be able to decide whether you want to advance. Knowing oneself is essential for making lasting change, whether the topic is money or life in general.
Ways Psychology Affects Your Money
I enjoy exploring people’s monetary inclinations and the role that money plays in their stories. Everyone is unique, as I’ve previously stated, therefore none of these traits is good or bad. You’re just wired that way by nature. I want you to recognize the following four aspects of your financial mindset:
1. Spender vs. Saver
Most people can usually tell if they are a spender or a saver quite easily. When it comes to money, spenders can imagine so many inventive possibilities. This is definitely me! I can’t wait to spend any excess cash that I have since it always burns a hole in my pocket.
On the other hand, a saver’s first impulse is to refrain from making purchases. They are considerably happier now that they have money saved. Savings are the ability to wait patiently before making a buy.
Going overboard can be risky for both spenders and savers. If you’re a spender and you spend everything you earn, you’ll go bankrupt. Also, savers would lose out on a number of enjoyable activities that would have made their lives happier if they saved everything they earned. When we consider it, this seems very clear, but the point is that we still need to consider it.
2. Nerd vs. Free Spirit
The two categories of budgeters—have you heard of them? Math nerds love to crunch numbers. They actually relish setting up their budget. Weirdos. (Sorry, I kid!) It makes people feel good to know where their money is going each month and to look for ways to improve it. They enjoy how everything has a nice, tidy place.
The free spirits are. Hey, the party is us! We are able to enjoy life because we don’t get caught up in the minutiae. Although the words “budget” could make you break out in hives if you’re a free spirit, the categories for shopping and amusement are really your love languages. Life is best lived to the fullest by free spirits!
The free spirits are needed by the nerds to add some fun spending money to the budget for non-essential items like birthday parties, vacations, and date evenings.
The nerds are necessary to assist free spirits in creating a practical budget. I adore my nerdy spouse Winston’s meticulous attention to detail and his in-depth understanding of the situation.
Think twice before assuming that those who are more prone to conserve money are geeks and those who enjoy spending money are free spirits. Actually, my dad is a nerd-spender. He enjoys spending money, but he also enjoys monitoring his expenditure.
3. Safety vs. Status
Are status or financial motivations driving you? You might need to conduct some serious soul-searching for this one. As you consider what drives you to spend or save, be sincere with yourself. Making the psychology of money work for you depends on this element.
Safety-conscious individuals desire the security that money can provide. People want to be sure they can survive a loss of employment, a serious illness, or even just a decrease in income. Watch out for living in fear if you’re a safety person. Fear can prevent you from making charitable contributions, saving money for retirement, or even buying a new pair of shoes when the ones you’re currently wearing have a hole in them and obviously need to be replaced.
If someone views money as a status symbol, then money is how they define success. Their choice of residence, their participation in certain pursuits, and their capacity to take that ideal vacation are all influenced by their financial situation.
4. Your Family and Childhood
Your attitude toward money was undoubtedly shaped from a young age by the way you heard your parents talk about it—or not talk about it. Although it won’t entirely describe your financial thinking, it’s still important to be aware of.
How the Psychology of Money Affects Your Decisions
The truth is that money only magnifies who you are; it does not change who you are. Being courteous and giving will make you even more liberal with cash. You’ll be much more unpleasant and self-centered with money if you’re already those things. You have the freedom to choose how you want to use money; it’s just a tool.
The psychology of money has an impact on hundreds of small decisions we make every day without even recognizing it. The safety vs. status trend is one instance that comes to mind. I tend to gravitate toward status. If, on some level, it makes me feel successful, I’m more likely to value a name-brand handbag or luxury vehicle and find a way to rationalize a more expensive purchase.
On the one hand, this just means I enjoy fine things, and if you can afford them, there’s nothing wrong with that, believe me. But, I have to keep my expenditures in check because I am aware of my predisposition toward status. I have to keep in mind that who I am is not defined by the things I own.
You can learn more about your own financial habits by taking my Know Yourself Money Assessment. You’ll fully get why you have the financial worries, dreams, and tendencies you do once you’ve gained this understanding of your own money mindset. Progress will be achievable once you understand why you decide the way that you do.
