How knowing your ‘Money personality’ can make you better off
Thanks to technology, you don’t have to be a Type A to meet your financial goals anymore
Living in the middle of a pandemic when the spread of the virus is exponential becomes ethically tricky.
Example:
Me: Damn, I forgot to order chocolate when I did my grocery order. Time for a Shoppers run.
Me: But wait. I may be an unknowing carrier, what if I infect some old lady and she dies. I’ll be a murderer!
Me: Wait. The spread of this thing is still exponential. That means if I infect someone, they could pass it on to multiple people, who could pass it on to even more people, and they could die, and I was the cause of it all. I’m going to go to Shoppers as Annie and come back Ted Bundy!
Stressful stuff. Thankfully, in Canada at least it looks like the curve is slowly starting to flatten.
Hopefully, though, we’ve all now spent some time contemplating exponential growth and how it can be a curse when it comes to tiny freaky things flying in the air, but a blessing when it comes to money. As shown below:
After moving to Canada and later becoming a Permanent Resident, I spent a bit of time learning about finance. I’ve never been terrible with money as I’m not a big spender, but I’d gone from having meager living costs paired with a Western wage in Vietnam, to high living costs and temporary unemployment in Toronto. This had made a serious dent in my savings, so I was forced to take action to regain my losses. I got some help from friends and read a few books, and later put my learnings together in a talk called Personal Finance for People Who Hate Spreadsheets. I promised to help people set up a financial plan based on their Money Personality in the time it would take them to do a Buzzfeed quiz (about 15 minutes).
I am not an expert in finance[1], but learning more has boosted my confidence and sense of freedom. As someone who has spent some years fairly nomadic, knowing I have money to travel if I feel restless or miss home (New Zealand) has helped me feel more comfortable committing to a single place.
There were two thoughts behind the ‘Money personality’ direction. The first was that it would be a fun way to get the attention of people who feel they know little about finance and investing without any pressure. The second is that despite there being plenty of free financial advice available online, I believe in customizing advice based on what people’s needs are and the amount of time/knowledge/motivation they have available to think about finances.
The Buzzfeed quiz comparison was intended to be a bit tongue-in-cheek (you can’t get your finances entirely sorted in 15 mins), but you can get a better idea of what might work for you.
I’ve reproduced my talk below. Please keep in mind the audience was a group of employed professionals, most on full-time incomes. It is intended for Canadian residents. If you are a resident of New Zealand, try the quiz from Sorted.co.nz instead.
Before we get into the Money Personality quiz, let’s talk quickly about why we should be thinking about money.
If we have a steady income and our pay level is okay: Why bother?
For those of us that enjoy working, it’s not because we want to retire at 50 and live out the rest of our days on cruise ships like these geezers.
It’s more that we want to be able to feel a little more like this man in our lives in the present — we want to feel freer and in control.
But we don’t want to have to penny-pinch. And we don’t want to be seen as stingy either.
For a lot of us, it’s easy to put off thinking too much about money because we have this feeling that in a few years we’ll be richer, and we can focus on it then.
The thing is though, in the time between graduating and getting our first job and 5–10 years down the track, a lot of us can get caught into this trap where because we now have money and we know we’re gonna keep working for a long time, we spend it on things like new cars and weddings and then houses, potentially leaving us still pretty broke, even though we have a lot of cash coming in.
The key to avoiding this trap is being conscious about money. To try to think a bit more about the long term, and have a rough plan we can refer back to to make ourselves a little more accountable, without restricting ourselves so much that we feel stressed.
To find out what kind of plan might work for you, I’ve put together a Money Personality Test.
1. If you go on a vacation, what tends to be your approach to planning?
A. I like to go with the flow and figure out what I want to do when I get there
B. I do a bit of research before I arrive but I don’t go crazy
C. I want to make the most of every moment there so I like to arrive with a solid schedule
2. What do you feel motivates you in the work that you do?
A. I get up for the sense of ‘flow’ I get from my work — I would describe myself largely as process-motivated
B. I am fairly equally motivated by the work itself and the reasons why I’m working
C. The reasons why I work get me up in the morning — I would describe myself largely as reward-motivated
3. What best describes you?
A. I often start projects, but I frequently don’t finish them
B. I occasionally start projects if I have spare time
C. Once I start a project I am pretty good at seeing it through
4. How often do you look at your bank balances?
A. I check my bank balances 1–3 times per week
B. I check my bank balances every day or so
C. I check my bank balance multiple times a day
5. When you’re shopping for things, what best describes you?
A. I’m happy to go with the first thing that is close enough to what I’m looking for in order to save me time/energy
B. I spend a bit of time looking for something so I know it’s good value but I’m not too fussy
C. I describe myself as a maximizer — I always want to find the best deals even if it takes more time/energy
Q6 How much do you love spreadsheets?
A. Excel is gross
B. They can serve their purpose
C. Fuck yeah I love spreadsheets
Tally up your answers!
I’ve broken my advice for the different personality types into steps. Some advice can be relevant to all money personality types, as you will see in the top line of each slide.
Unless you know for sure you want something; a monetary goal is probably better. This is for a few reasons.
A. You may change your mind.
B. You may have unconscious stresses associated with what you’re saving for (i.e. a house comes with a mortgage), which could make you less likely to save as much.
C. Having monetary goals allows you to continue growing your goal year on year, which is satisfying.
Most of the people that I know that are exceptionally good with money have freedom as their goal, and they will simply set dollar amounts to aim for. See if it works for you.
To assess whether a goal is realistic, look at how much you have been saving on average recently, and try and boost it by an amount that seems reasonable to reach your goal. If you need to make a big change your goal may not be realistic.
You should set the payment up to go out on the day or the day after you get paid, based on the rule that you should pay yourself first.
Having an investment account totally separate from your day to day banking helps you to not be tempted to spend that money. By sending it out you are committing to shipping it off to long(er) term savings.
Think of your daily chequing accounts and long term saving accounts as not being mates AT ALL.
If you’re not currently making use of registered accounts, please see the appendix for more details. TFSA accounts give you the most flexibility, and not having to pay tax on withdrawals makes a big difference over time.
You should be setting up your recurring payment based on current earnings, but you’ll need to adjust this as your earnings go up (or if they decrease).
Most people want to be able to improve their lifestyle as they get older, but also save more. If you decide on a ratio of how much of any income increase will be allocated to ‘fun / lifestyle’, you’re likely to commit more to your savings while still enjoying living better with every pay increase.
If your employer offers RRSP matching and you haven’t signed up, you may as well go to an ATM right now, withdraw hundreds of dollars and throw it directly into the garbage, because that is what you are doing.
ETFs are a simple and relatively safe way to invest your money. They are much less risky than buying stocks individually, which I don’t advise doing because no one can predict how an individual company will do.
I believe Wealthsimple does a bit of rebalancing themselves, but they are primarily charging you to buy ETFs you could easily buy yourself that are managed by a separate company, Vanguard. You are paying to never have to think about it, and for good UX, so you can decide what you think that is worth. The difference in fees doesn’t look like that much, but it will add up to a lot over time.
Buying ETFs directly yourself through a platform like Questrade may have the added benefit of making you more interested in investing. A positive as long as you don’t get carried away and end up an options trader gambling away her child’s university fund.
You don’t want to have your chequing account sitting there with thousands of dollars in it, because then, of course, you’ll be more likely to spend more.
Ideally, your regular expenses, i.e. rent, bills, which are predictable, should be coming out of a different checking account. Otherwise, you will get anxious when your spending account gets low. If that seems like a hassle to set up, try using a Koho card for your daily spending.
Ya’ll know Marie Kondo from Netflix, and how she talks about picking up stuff in your house and seeing whether or not it brings you joy? You can do the same thing with your spends.
Don’t just wait until you’re doing a big clean up — preemptively avoid gathering a lot of clutter by taking note of how spends make you feel and spending less on things that you find haven’t actually brought you joy.
‘Making cuts’ from things that don’t bring you joy is going to be so much more sustainable than from things that bring you joy, and life’s too short for that anyway, so keep having that daily latte if you love it. There’s an app for this too!
It may seem like a hassle to change your bank, but it can make a surprisingly big difference to be with a bank that you feel really good about.
Not having to pay fees makes it easier to set up your budget properly because you can have your multiple checking accounts for different purposes.
You can move money from savings accounts easily if you need to top up your spending account.
Liking your bank may even make you feel a bit better about money and less stressed.
Every day we are surrounded by fancy new things we could buy presented in enticing ways. We see advertising on our phones, billboards, bus shelters (a lot of it only registering unconsciously). We and have chats at the watercooler with our workmates about their new Nikes then we find ourselves browsing the shop after lunch. These are all BUY messages.
Engage with content from cool people who talk about their sustainable lifestyles to help counter these messages.
Although common knowledge at this point it bears repeating: These apps are designed to be very addictive. What is less well known because it took a while to gain acceptance in the scientific community, is that although it lessens a bit as we age, the adult brain is still neuroplastic. This mean that by turning to social media to curb any feelings of loneliness or boredom, we are reinforcing those neural pathways, making us more likely to turn to our phones to curb those cravings even when we are actually around other people we would benefit more from connecting with instead[2].
We’re all familiar with the FOMO experience from other people’s social posts, but I have a personal example that illustrates how irrational those feelings can be. A few months back I was sitting on the couch, scrolling through Instagram. The thought popped into my head: “Fuck! Everyone is travelling except me!”. A second later I snapped back to reality and realised that I had arrived back to my apartment from the airport not an hour earlier, having just landed from New Zealand (being from there, I only sort of view going to NZ as travelling).
In addition, these irrational FOMO thoughts are often based on an impression that often only loosely represents reality. When you see a friend’s beaming selfie in front of the Taj Mahal, you’re not seeing the hours of standing in the heat with hundreds of others waiting to get the same shot, the sweat dripping down legs, the blisters on the feet from walking everywhere. These things can, in fact, add to the travel experience in that they can make it more heightened and memorable, but you don’t see them in the curated image.
Giving up social media entirely may not be realistic nor desirable. Find a balance that works for you. I have Instagram which I sometimes use to keep in touch with friends and occasionally post photos. I just rarely have the app on my phone. It keeps the total time I spend on it pretty low and hopefully prevents it from becoming my brain’s go-to for comfort.
This is another way to top up your savings and a fun way to gamify day-to-day saving.
In other words, if you look after yourself, you’ll be even better at looking after your bank account!
If you found this article helpful, please consider making a small donation to Prosper Canada to help less fortunate Canadians become more financially independent.
_______________
Appendix
Not paying tax on interest gained makes a big difference over time, as shown here http://www.rbcroyalbank.com/services/retirement/tfsa.html
A more thorough guide on the differences between TFSA and RRSP accounts
https://youngandthrifty.ca/tfsa-vs-rrsp/
Investopedia introduction to ETFs https://www.investopedia.com/terms/e/etf.asp
Determine your risk profile for ETFs
https://www.vanguardcanada.ca/individual/questionnaire.htm
Want to go all the way and retire early? My friend Laks Vajjhala has an online course that will help you learn how: https://www.udemy.com/course/happy-path-fire-financial-independence-retire-early/
Footnotes
[1] Interestingly, the term ‘Financial Advisor’ is not a regulated title in Canada, which means that technically I could be your Financial Advisor. Normally though, Financial Advisors make money from selling particular products (which they need to be licensed to do) which means they are rarely giving out impartial advice. I have no bias other than one towards products with a kick-ass user experience that don’t rip you off in fees. If you want financial advice from someone who really knows what they are talking about, try a Certified Financial Planner, they have to pass exams and stuff.
[2] I’m reading about this currently in The Shallows: What The Internet Is Doing to Our Brains by Nicholas Carr.
