What do your beliefs about money have to do with your finances? Everything!
Personal finance is a lot like weight management: to lose weight, your outputs must match or exceed your inputs. When it comes to money, we want just the opposite. Earn more, spend less, invest wisely and you’ll retire a millionaire.
While that simple prescription is true, just like in the case of weight loss, tuning your finances just right involves an awareness of those ideas that affect your financial decisions — even those that are automatic.
Money Psychology: Your Beliefs About Money
Whether you believe in Myers-Briggs, Enneagrams, The Big Five, Type A/Type B or you think all personality typing is bunk, it’s hard to deny that people are different. Much of the personal finance literature ignores those differences. Yet, these priorities drive and shape our behavior.
Behavioral economics shows us that we are all prone to certain irrational actions when it comes to spending, saving and giving. So before you can figure out how to effectively manage your money for the long term, you’ve got to figure out how to navigate your own psychology.
Your Core Beliefs
Underlying all of your decisions when it comes to money is your worldview. We each have certain ideas engrained in us from childhood about the purpose of money and how we ought to interact with money. Some lessons were explicit. For instance, my grandfather always said, “an ounce of prevention is better than a pound of cure.” Others we learn by observation. You may have seen how your parents always sat down together on Saturday mornings to go over the budget.
In addition to our engrained ideas about what we should do with money, we also have ideas and emotions about the purpose and value of money itself. Maybe you view money as your primary source of security. You might view spending as a means to happiness. Or you might think that money is the root of all evil.
The point is, it’s important to review your core beliefs to determine how they may be sabotaging your financial dreams.
Erroneous Beliefs About Money
1. Having More Money Will Make You Happier
Some studies claim that all you need is $40,000 in income to be happy. Others say that you need $70,000. One thing we do know is that at some point, each additional dollar earned is worth less to you than the one you earned before it. Until that point, more money really will make you happier. But you’ve got to use your money in the right way to “buy” more happiness. If you use money to increase your security or reduce your stress in the event of a layoff you will certainly be happier. Using money to buy experiences is said to increase happiness significantly — particularly if you experience those things with people you care about.
2. Always Trust a Finance “Guru”
It is usually a good idea to get advice from experts. You should definitely turn to experts when it comes to matters that you don’t know much about or that are complex and outside your wheelhouse. But don’t just believe what everyone tells you. Remember that even the most popular finance gurus have their own money beliefs — and their own motivations. Examine those beliefs and take advice with a grain of salt.
3. More Money, More Problems
For many of us, when we think of people who are wealthy, we imagine they are working like maniacs, never see their kids and are stressed out of their minds. That may be true for many wealthy individuals. But this is also true for a lot of people who aren’t making much money at all. It simply isn’t true that there’s a strict one to one trade off of money for time and stress. Be more discriminating when evaluating whether there is a way for you to improve your financial wellbeing without sacrificing wellbeing in other areas of your life.
4. Money is the Root of All Evil
First of all, the original quote is actually “the love of money is the root of all evil.” Money in itself is not evil. If you believe this and you aspire to be a good person, you may constantly put yourself in the position to rid yourself of money, or to resist the urge to pursue more money. You may also be afraid to invest because you think it’s gambling. In fact, having more money does a lot of good. With a more secure savings and investment plan you won’t have to rely on others as financially in times of trouble. Having more money also gives you more choices when it comes to doing good.
Take a moment to ask yourself what your core money beliefs are and whether they ring true with your other values. Are some of your beliefs holding you back from the financial future you desire?