Your Money Story and Your Choices
How Does Your Relationship with Money Impact Your Financial Decisions?
There is a lot of emotion tied up in our relationship with money. To save it or spend it. To stash it where it is “safe” or invest it and hope to watch it grow. Humans are complicated and our relationship to our finances is no different.[i] Taking the time to consider why we do what we do and what particular emotions may be triggering our behavior, in relation to money, can help us make more informed, deliberate decisions about our finances.
The Excitement of Spending
One emotion that can be both a good or bad money motivator is excitement. There is a real rush when one encounters a windfall or starts seeing some expendable income. And for some, spending that money on a coveted, much-desired item is satisfying. For others, the excitement comes from watching the small seed investment planted grow and mature. And for others there comes the excitement of knowing there is money stashed away safe and secure. There is an excitement in having enough money to choose where to put it. But when that excitement leads you to make unsound or risky choices, better to take a step back and gain some perspective, before you do something that could hurt your long-term finances and goals.
The Fear of Losing
Often, we make choices because we have to. You may not want to save and save, but you know there are big expenses on the horizon. And you fear not being prepared or having enough down the line. Fear is another big motivator right behind excitement. A person who is making decisions because of fear may not be making the best choices for their current or future situation. A fear choice is one that feels desperate, out of options, paralyzed. Being too afraid to live, to spend, to change, to take a risk, may be as dangerous as making a high-risk choice out of excitement. Being too cautious can be as bad as being too cavalier in the end. Having a healthy relationship with potentially negative outcomes: emergency savings and the proper paperwork (wills, power of attorney, insurances) is good. Neglecting to live your life, have experiences, or live a little for fear of financial ruin may be taking cautious apprehension too far and into the realm of fear.
How we ride the exciting highs and the fearful lows of money are unique to each investor. Understanding how and why we spend and save the way we do and trying to have a healthy balanced relationship with our finances is really the goal. You don’t want to be a slave to debt or stress about affording your retirement. Money problems can become quite toxic in an environment that cultivates them. For example, money is an oft-cited reason for divorce.[ii] Money is a common factor in suicide and depression.[iii] Ongoing money stress can lead to PTSD symptoms and other cognitive behavioral disorders.[iv]
Our spending and saving behaviors, if careless or reckless, can cause some serious and long-term financial troubles. So, the more we examine our motivations and then create goals, the more prepared we can be. In an ideal world, we can hope for the best (exciting) and plan for the worst (fear) by balancing out our relationship with money, finances, and what drives our financial decision making.
Striving for Balance
Our choices have consequences. And like the story of the grasshopper and the ant, there can be real hardship if we are too free with our spending and willingness to take on debt to fund lifestyle choices. While cautiousness is encouraged, life is not only saving up for rainy days and pinching pennies either. Striving for a healthy relationship with money should be one part of who we are in total. Seeking advice on financial concerns and addressing challenges you are facing proactively rather than reactively is paramount to building and maintaining a long-term financial plan. And while that idea may be common sense for some and wildly unrealistic for others, the first step is taking a look at what motivates your money habits. The next step is finding ways to get your finances under control and moving toward balance.[v]
- What is this month's risk odometer?
- https://www.marriage.com/advice/divorce/10-most-common-reasons-for-divorce/ [iii] https://health.usnews.com/health-news/health-wellness/articles/2015/03/05/financial-worries-linked-to-rising-suicide-rate-among-baby-boomers [iv] https://www.forbes.com/sites/kateashford/2016/04/22/financial-stress/#11f92c6f2753
About the Author
As co-founder and Chief Investment Officer, Mike brings real-time investment management experience to clients. Prior to forming FC Wealth Solutions, he spent 15 years working on Wall Street as a trader and portfolio manager for some of the industry’s most well-known firms. His previous experience at Morgan Stanley, Royal Bank of Canada and Hutchin Hill Capital gave his valuable experience in institutional money management. His focus on continual research helps him identify macro trends and strategic investments for client portfolios. His research has enabled him to develop many of the rule-based investment strategies the firm uses for managing client assets and monitoring the markets.