Why The Story You Tell Yourself About Money Matters

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We think financial planning and success with money is about budgets, asset allocation, investment returns, risk, and mathematical calculations. But really, there is something way more important and foundational to our success — the story we tell ourselves about money.

Everyone has a money story. It consists of scripts that developed from an early age; whenever you first became aware of money. Our scripts are built, piece by piece, on all of the economic events in our life, as well as the thoughts and emotions surrounding those events. The ones that effect us the most are the ones that were highly emotionally charged. But it isn’t the event itself as much as the reaction to the event that has the biggest influence.

We absorb the event and apply the “lessons” universally even when the circumstances don’t warrant it. Many who lived through the Great Depression continued to live hyper frugal lives long after their economic circumstances changed. It created a script of scarcity that never left them……..even when they had evidence to the contrary. It is that inability to accept the contrary evidence that is harmful. This doesn’t lead to productive thinking about our money.

How do we fix this? Fortunately, more people are researching financial psychology to try and help us all understand how to interrupt destructive financial patterns and promote financial health. Brad Klontz is one of these researchers. According to his research, he concluded that most people’s money-related beliefs fall into four basic categories –

  1. Money Avoidance — Avoiders feel that they don’t deserve money so they distance themselves from it, and avoid it. Often they will sabotage their own efforts so that they don’t have to deal with it.
  2. Money Worship — Worshipers think that money solves all problems. They live with the idea that when they have more money, everything will be better
  3. Money Status — For this group they equate self-worth and net-worth
  4. Money Vigilance — The vigilant group pays their bills on time, don’t flaunt their money and are cautious about their spending but often deprive themselves for no reason.

Each of these belief sets has their own set of issues that is counterproductive to healthy money habits.

In his book, Mind Over Money, which he wrote with Ted Klontz they dove deep into the dysfunctional relationship that so many people have with their money. What creates this dysfunctional behavior? How do we eliminate financially destructive behavior and replace it with productive thinking about saving, spending and investing? Finding ways to reduce or eliminate these destructive behaviors is good for all of society.

Have some people overcome these scripts? This is the question that Paul Sullivan had when working with Klontz. He was researching his own book The Thin Green Line, Money Secrets of the Super Wealthy. Sullivan knew that super wealthy people thought about money differently than the rest of us. He research lead him to believe that wealth wasn’t just a number, but rather a mind set. Wealthy people possess a contentment that comes from having enough, regardless of the actual number. A rich person will always struggle because they don’t have this same contentment and there are so many ways that circumstances beyond their control can change their financial position.

So what did they conclude helps us overcome our destructive money scripts? It was something Klontz termed “internal locus of control” — believing that you are in charge of what happens in your life, good or bad, and if it was bad, believing you can fix it. Taking both the credit for your success as well as responsibility for failures. Also having the ability to take in and act on information that was contradictory to what you once believed. Those who remain stuck continue to believe the script no matter how much contradictory evidence they have.

This ability to question your assumptions about what is true is something that Ray Dalio says is a big factor in his success. In his essay Principles, he discussed how he was always testing his beliefs. Always asking the question “is it true?” He was open to that contradictory information. Combine this with the belief that you have the ability to change what happens in your life; you can accept responsibility for failures and you have the ability to change them can make all the difference. You can flip your money script to become one that promotes productive habits and financial health.

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Hi, I’m MaryEllen. I used to be a CPA. Then I got burned out. I thought I could just wrap it up and be done. So I retired from the corporate world at 48 and set off for parts unknown with only half a plan. I’d figure out the rest later. What I know for sure is jumping off the path and figuring out my own way was the best idea I ever had.

I didn’t want to be done, I just wanted to make my own rules about work and retirement. I’ve been figuring out a lot since then and I share what I have learned here and on my blog at maryellenmiller.com. I’m also on Twitter @TalkMoneyWithME