When it comes to financial health, we often pay attention to how money works and the resources to make informed financial decisions. However, one crucial thing that many people often disregard, or are not even aware of, is their money personality type.
Money personality refers to one’s approach and emotional responses to money that have been shaped by life experiences or passed down from previous generations.
According to financial psychology expert Ken Honda, there are seven money personality types. Identifying and understanding which type(s) you are will help you recognize and make better financial decisions. This can also lead to a better relationship with money, including less impulse buying, better budgeting, and wiser investments.
The compulsive saver
- You tend to save all your earned money. Saving money is the best way to feel secure in life.
- You lead a very frugal life and want to spend money only on the bare essentials, which can result from growing up in poverty.
- You are a bargain hunter or a deal hunter. You know, like the back of your hand where to buy food, clothes, or airplane tickets at the lowest possible price.
Pitfalls: As a compulsive saver, you tend to cut off any spending on your hobbies or activities which can enrich your life. You are more likely to suffer stress due to your constant fear of losing money and lack of dopamine-induced activities.
Solutions: Try to balance saving money and enjoying your life. Investment is an excellent way to make money from your savings. However, remember to set aside an amount of your monthly budget for your hobbies or recreational activities.
The compulsive spender
- You often spend without budgeting your money.
- You tend to spend money when you are under stress. Consequently, you make unnecessary purchases only to experience buyer’s remorse later.
- Spending money is considered as a way to express yourself. You love to buy luxury brands, purchase the latest and greatest smartphone even when your old one is still in good condition, or treat your friends to something special for no particular reason.
Pitfalls: For a compulsive spender, spending money helps to produce high levels of dopamine, the “happy hormone.” In many cases, you are likely to overspend even when you are in debt, which increases the risk of bankruptcy or bad credit card debts. Also, you can hardly resist the temptation to splurge when you are emotionally distressed or during a sales period.
Solutions: Plan a monthly budget to practice financial discipline. To improve your money consciousness, which means knowing how much you spend or where your money goes, you should opt for a cash payment instead of paying by credit card. Besides, you’d better engage in other ways of getting rid of a bad mood rather than retail therapy to avoid spending uncontrollably.
The compulsive money maker
- You strongly believe that earning more money will secure a better life.
- You focus on making as much money as possible, and as a result, you have little to no time to rest and relax.
- You enjoy others’ approval and recognition for your financial achievements.
Pitfalls: Making more money will increase your chance of achieving financial freedom. However, it might come at a price that you lose quality time with your family and friends and have no me time. Consequently, your physical and mental health will be in danger in the long run.
Solutions: Recognize that life is not all about money. You should enrich your life and spend time for yourself and with your loved ones. In addition, you can donate money to charity, which can help you feel financially strong and help the disadvantaged at the same time.
- You rarely think about money and care little about money. As a result, you are less likely to plan your budget.
- You believe that money should not affect essential decisions in life.
- You grow up in a wealthy family and worry little about money.
Pitfalls: That happiness does not depend on money is a healthy mindset. However, it can backfire on you if you are financially irresponsible (for example, you live off your spouse or parents instead of earning a living.)
Solutions: Even if you are enjoying a solid financial life, you should get yourself into the habit of managing your money. It is vital to know your monthly budget, expenses, or debts (if any). Also, remember to set aside a certain amount for emergencies.
- You bear the traits of compulsive savers (type 1) and compulsive spenders (type 2).
- You can save a great deal of money while tending to spend it impulsively. Undoubtedly, your hard-earned savings can end up in some unnecessary purchases.
Pitfalls: You are more likely to suffer from self-disappointment as you work hard to save money only to splurge quickly.
Solutions: Researching what you want to buy can prevent you from impulse buying. Also, refrain from browsing shopping apps when you are exhausted because, at this point, your brain is least likely to resist the buying temptation, especially when there are good deals and discounts. This 72-hour rule can save you from impulsive buying during a sales period.
- You bear the traits of money makers (type 3) and spenders (type 2).
- You can earn great money and make bold and risky financial decisions. For example, you are more likely to invest in big, high-risk projects.
- You are a risk-taker and sometimes gamble away your money out of sheer boredom.
Pitfalls: Risk-takers believe in “go big or go home” and suffer more often than not from monetary losses. However, you will be at greater risk if you let the gamble slip out of gear or take your contingency funds or retirement savings to cover your losses.
Solutions: Nothing ventured, nothing gained. However, it is crucial that you set aside a contingency fund in case your investments fail. Also, before buying into a project, you should analyze it thoroughly and consult a financial expert.
- You live in constant fear of losing money even when you are in a strong financial position, which might result from your significant monetary losses or your family’s bankruptcy in the past.
- You are not confident that you can achieve financial freedom.
- You always think of the worst-case scenario that you are stone broke and stay prepared for it.
Pitfalls: It is a good idea to prepare for the worst-case scenario. However, as a worrier, you tend to skip low-risk investments for fear of losing money and consequently miss out on profit-making opportunities. In addition, your fear of losing money can negatively influence your big financial decisions.
Solutions: You should address your fear to a financial therapist who will help you find its root cause and explore how to overcome it. Besides, asking a financial expert for advice on safe and effective investments is a great idea.