Defining Your Relationship With Money

2014-10-26   minute read

What is your relationship with money?


Person in front of a laptop on their cellphone holding a credit card

Getting into debt can happen to anyone, causing mental stress and uncertainty. To learn how to better manage your money, you must also have an understanding of your relationship with money. Building a relationship with money is just as important as relating to the people in your life. You have to learn to love the value and importance of money, as well as pay attention to how and where you spend it. Improving your relationship with money requires a fundamental change in your mindset. You need to not only recognize the type of person you are in relation to your money, but to also look at your own motivations for earning and spending money.

Money gives many people a sense of power, prestige and even fulfilment. While having funds is essential to living, our own personal belief system and attitude towards money can bring both desirable and undesirable consequences. Money influences our attitudes towards saving or spending, which is why people relate to money in different ways. Scott & Bethany Palmer, co-authors of “The 5 Money Personalities”, identified five profiles when it comes to money and wealth: savers, spenders, risk-takers, security-seekers and flyers (a flyer is someone who does not talk about money at all). Understanding what profile you belong to can help you prioritize savings and spending, prevent you from ‘hitting a financial wall’ and create a realization that you are responsible for your finances.

Joe Lawrence, PsyD, a noted clinical psychologist stated that “financial wellness is a component of overall wellness.” Money helps define our mood over the course of our lives, as we tend to oscillate between feeling high or low depending on what our bank balance is. Money is never the actual reason for being in a bad mood – at least, it never should be. It is our perception of the dire situation that we find ourselves in that is ultimately the cause for pain and fear, and which can sour relationships with loved ones. Brad Klontz, PsyD, a financial psychologist explained that “Financial health is having a conscious and purposeful relationship with money that is satisfying and is not overly stressful.

Common Causes of Money Mismanagement

To get out of the “money fog” (where one is not conscious of impulsive and compulsive spending), you must seek and understand the causes of mounting debts. Today’s culture of consumption and desire, coupled with your individual spending habits, are equal factors that could lead to insolvency. A survey by the Office of the Superintendent of Bankruptcy (OSB) highlighted some major reasons why people become insolvent. Among these, employment / income issues accounted for 26.09%, money management for 15.92%, health-related for 13.01%, relationship breakdown for 10.97%, and business failure and tax-related for 8.36% and 8.07% respectively.

To enjoy a good healthy working relationship with your money, not only should you understand the differences in how individuals look at money, but also change your behaviour towards it by paying attention to your income and expenses, while preparing for any contingencies and emergencies.

Money Management Strategies

Money management is the process of knowing where you are spending your money today and having a thorough plan in place for where you want it to go in the future. The first essential step in managing your money is to get organized. Start by considering all of the accounts and obligations you have, including a mortgage or rent, loans, credit cards, utilities, chequing and savings accounts, investments, retirement funds and insurance. 

A tool we invariably recommend to consumers is a budget – a plan for where your money needs to go and what you want to do with it. A positive relationship with your money calls for your budget to be flexible yet disciplined and able to help you prioritize your spending. Eventually this budget becomes a road map to more detailed, long-term financial planning, by instilling discipline in setting aside cash on a regular basis to provide you a safety net during financially challenging times. Further, tracking your discretionary and non-discretionary spending will also help you to sort out your wants from your needs. This distinction is vital to control both compulsive and impulsive shopping habits, which often lead to unmanageable debt situations.

To minimize your financial stress, it is equally important to maintain an emergency fund for any unexpected expenses. Some experts recommend your emergency fund be anywhere from 3 to 6 months of essential expenses, but I normally recommend saving whatever little one can afford under the circumstances. Ultimately, you’ll find you are much happier today and into the future when you adopt strategies that will lead to a more positive relationship with your money.

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