Why You Do What You Do With Money
Understanding the psychology of money.
People are inherently different, with different temperaments, abilities, desires, traits, and personalities.
Just like our dreams, aspirations, fears, and passions are different, so is our view of money. Money elicits divergent views, emotions, and thoughts from different people. Understanding the psychology of money not only enables us to comprehend these thoughts and emotions but also makes us aware of our behaviors and attitudes toward money.
Psychology of money explains why you behave the way you do — why you spend, save, use debt, put off investing, and more.
What is the psychology of money?
Simply put: the psychology of money is the study of our behavior with money. From an early age, we develop certain perceptions of money that stick with us to our adulthood. These perceptions about money determine everything we do, from our spending habits to our risk tolerance. Over the years, I have come to learn that success with money is not in any way linked to IQ or educational success. We have seen big banks with very educated accountants, risk managers, and compliance officers go burst while a small business survives the crisis of a generation.
Why does this happen? If you think you are too big to fail, chances are that you will let your guard down, and that might be how you fail. On the other hand, if you know that you can be wiped out in a second, you are more likely to be careful and diligent. Understanding the psychology of money makes us self-aware enough to make changes in how we view and treat money.
How does the psychology of money affect your decisions?
Money is an amplifier. If you are a kind and generous person, the more money you receive, the more kind and generous you will be. However, if you are a rude and egoistic person, more money will only amplify this trait. Money rarely changes people, it just reveals who they really are.
Money is simply a tool, and you get to determine what to do with it.
Our everyday decisions are immensely affected by our psychology of money. This is seen when two individuals are given the same amount of money, and one individual may opt for status while another opts for safety. Opting for status includes buying luxury brand items, while opting for safety means being frugal. This attests to the role of psychology in decision-making. Our views and uses of money are greatly influenced by our backgrounds, fears, insecurities, and life circumstances.
How you can use this to your advantage?
Financial success is 20% financial knowledge and 80% behavior. Understanding your behavior with money is key to financial success. Why do you spend the way you spend? You can take a free online assessment online to help you figure out if you are a spender vs. a saver or are in pursuit of safety vs. status. Once you have established your money personality, it is easier to understand and declutter your expenses. A person who is after status might bleed themselves dry in its pursuit, not knowing that they are digging themselves into a financial trench. Knowing this enables you to restrain yourself and acknowledge that you are chasing after the wind.
“Rational people don’t risk what they have and need for what they don’t have and don’t need.” — Warren Buffett.
Compulsive savers who often fight money anxiety can also know their money personality and develop strategies to combat their fears. If you suffer from money anxiety, consider reading this article below:
Conclusion
Our behavior with money stems from our hard-wired view of money. Our fears, desires, and insecurities all play a role in how we view and treat money. This explains why some people hoard money and others overspend. To break any chains that hinder your financial growth, you have to understand the psychology of money and start seeing money as a tool. Like any other tool, it can be controlled, used, and help achieve a certain goal. A deep look at your background, financial education, and behavior with money can reveal what your psychology of money is. Once you have identified this, you make changes that will steer you in the right direction financially.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.
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Until later, au revoir, bis spater.
