Your Money Psychology

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This is my personal mantra for money. When it comes to how you save, spend and invest money, understanding why you behave, feel and respond the way you do, aka your money psychology, is invaluable if you want to proactively change your money habits for the better. 

I completely acknowledge that “knowing your why” is not a new phrase or ideology as it is commonly used by many different well-known individuals, most recently and perhaps more famously by Simon Sinek.

Having said this, it is a great and simple reference point to continually come back to when exploring your money psychology, especially when you are looking to change your current spending habits. 

To me, there are four parts to knowing your why when it comes to understanding your current money psychology, that is, how you think about money.

(1) Your early money memories.

To really dig in to your personal money psychology, let’s start at the very beginning when you were a child. The reason we start here is because it may surprise you just how much your early memories of money still play out today in your current money psychology and this is incredibly handy to be aware of!

Do you remember your first money memory as a child? 

Really have a think about this for a moment. 

Once you have gone back as far you can and found that memory, take some time to consider this memory closely. 

After that, have a think about subsequent memories as a child. 

Then ask yourself, “Did my parents talk openly about money with me?”

Or was it your grandparents, an aunty or uncle?

How did they talk to you?

For example, when I was young, the very first money memory I have is when I received 50 cents from the tooth fairy. True story! 

When I showed my Dad my new-found riches, he said “That’s exciting! You know what? You can go spend that today if you want to. But, and here’s the important part, if you save that 50 cents and any other money you receive from the tooth fairy in future, you might be surprised to find that over time, you have an even larger amount of money which you can do so much more with. Better yet, if you want to earn even more money, you can help your Mum and I around the house doing extra work and we will pay you an hourly wage of one dollar. How does that sound?”

He then went on to explain what an hourly wage meant, but what is interesting is that in that moment, I learned two things. Firstly, I learned the difference between instant gratification and delayed gratification when it comes to spending money. Meaning, he taught me I could go and spend that 50 cents today if I wanted to and feel the enjoyment of it immediately, but if I waited and collected more money over time, I could have an even larger pot of money to do more with, which is a reward in and of itself to enjoy in the future.

Secondly, he taught me the time value of money. The concept of an hourly wage meant I began to value the time I gave in exchange for money and understood that if I wanted more money, I needed to give more of my time for it by working.

When I think about this money memory, I see this pattern in my current behaviours around money. I am a fierce saver and a hard worker. I am not perfect by the way! It is just interesting to see how this money memory impacted my money psychology.

Do you see any echoes of your money memory in your current behaviour?

There is a growing field of research in the area of “financial parenting” which explores the intergenerational transfer of money behaviours from parents to their children and one of the key findings which has emerged is that the quality of communication between a parent and child regarding finance is the strongest predictor of a child’s financial well-being.

Now it is important to pause here and say that your past experiences with money and your current money behaviour to date can be change at any time! It is just a really interesting exercise to go back in time and reflect on your earlier money memories so that you are aware of the impact they may be having on you today.

(2) Your current money identity.

Fast forward to today, in addition to possible money habits we learned when we were younger, we have consciously or unconsciously adopted a money identity.

What does this mean?

Great question! Here is a better question: what identity do you give yourself for your money habits?

Have you ever thought to yourself when you are about to spend money, “I am a saver, I’d better not….” or “I am a great earner, I can afford this…” or “I am terrible with money, I really need to get on top of this…” or “I am a spender, I deserve this….”, or any other label?

Really have a think about this, as it is amazing to discover what story we tell ourselves about who we are by the way we associate with our money habits. It is so important to remember that your experience with money does not represent who you are as a person and catching the story you tell yourself so that you can change it (if you want to) is a big step towards shifting your money habits for the better.

Some women I know are very comfortable in life because they earn a great salary, and yet from time to time, they can find themselves in financial trouble with too much debt. Why is this? 

When talking with them about this, they often say they were never originally worried about their spending habits or the debt they took on, because they always saw themselves as a “great earner”, a hard worker, someone who was capable of earning a good salary, who could subsequently afford whatever it was they were spending their money on. 

But being a good earner and being able to afford a comfortable lifestyle, including a large mortgage, is not necessarily a good thing, especially if the income dries up, even temporarily and sometimes due to unexpected life events like taking time out from work to have children, redundancy, divorce or a spouse passing away.

To expand on this further, when these women started to address the story they were telling themselves about being a “great earner” and shifting this to being a “great saver” it was fascinating to watch the shift that occurred in their spending habits as they began to save, pay down their debt and build a health wealth position for their future.

(3) Meeting your emotional needs.

Spending money should not be a mechanism by which you meet your emotional needs.

Each time you go to spend money on an item, ask yourself “why am I spending money on this?”. If the answer is “to feel good about X or Y” then hit pause, reset and find another way to meet your emotional need like calling a friend, listening to a great song, going for a walk or any other activity that works for you.

If the answer is “to make sure I can keep the lights on at home” because it is an electricity bill, then that is a really nice expense to pay for because how wonderful is it that you are able to do this?

Your emotional loading going into each of your money decisions is really important to observe. I really focus on being grateful for each bill I pay, at how proud I am for being able to do it, rather than grumbling about how frustrating it is to have to pay a phone bill, electricity bill or water bill. 

Additionally, any time I catch myself wanting to buy a book, new sweat pants, or any other item that catches my attention, I ask myself “why do I want to spend money on this?”. You would be amazed at how being grateful for paying ordinary expenses and checking-in with your emotional needs for other expenses can shift your money behaviour.

(4) Your price for hourly enjoyment.

Another alternative is to ask yourself how many hours of enjoyment you will receive from spending this money on X or Y and what is the price of this enjoyment per hour? For example, if you are buying a magazine because you just happened to be walking past a store, and the price is $15, and you know you are only going to flick through the pages at home for an hour, is this $15 worth it to you for that hour of enjoyment? Maybe, maybe not. 

Comparatively, if you are about to spend $300 on a weekend getaway to the beach with friends, and you know you are going to be away for 48 hours, is this $6.25 per hour price worth it to you for each hour of enjoyment? Maybe!

It is not for me to say how you should spend your money, all I am emphasising is the importance of knowing WHY you are doing what you are doing so you can change your money behaviour if you want to.

Remember, your self-worth is not your net-worth. It is OK to have made money mistakes, we all have, so there is no upside to feeling guilty or beating yourself up about it all. What you did yesterday does not need to reflect how you show-up today.

Does your earliest money memory play a part?

What identity do you give yourself for your money habits?

Are you trying to meet your emotional needs?

Is it worth the price for the hour(s) of enjoyment?

If you ask yourself these questions and spend time really understanding your WHY for each of them, aka your money psychology, you will be putting yourself in an empowered state of mind to proactively change your money habits for the better.

This is knowing your WHY.