The Psychology of Money

The Psychology of Money

How a person deals with money has nothing to do with how smart they are and to some degree how much they earn. Instead, our behaviors with and outlook on money can have a large influence on how we save or spend. Are you an anxious saver or a careless spender? Do you focus on buying the newest gadget or the amount of money that you have in your checking account? At Patriot Bank, we are here to help you make your relationship with money a healthy one. This article explores how the way you view money can influence your financial choices and what you can do to make smarter financial moves. 

Why does it matter how you think about money?

If you feel you could benefit from making some positive changes to the way you handle your finances, try analyzing your thoughts and beliefs about money. If you are self-aware, then you have a higher probability of being able to make changes for the better. 

If you find yourself stuck in debt, then work to understand the behavior that got you to where you currently are. Ask yourself why you spent as much as you did and how you feel about those decisions so you can start to understand your motivations for spending money.

What are your financial preferences? 

Spender vs. Saver

What is your first instinct when you receive money? Do you buy that next item on your wish list, or do you put the money into your savings account?

• Spenders are the types of people who have money spent before it’s even in their hand, or if they do have it, it’s burning a hole in their pocket. People who are spenders get a higher sense of gratification from swiping their cards than those who err on the side of caution. 
• Savers know that when they get their paycheck it is going directly into their savings account or investments. Savers usually do not crave the instant gratification others get from making a purchase, instead they are patient and think through their purchases. 

Both sides have their pluses and minuses. As a spender, you are going to be more willing to travel, go out and enjoy more experiences. While as a saver, you may feel like you’re missing out on some of these opportunities because of the cost that comes along with them. Balancing being both a spender and a saver is the key – so you don’t deplete your accounts but do get to enjoy your life. 

Financial Nerd vs. Free Spirit

Do you have a budget? Are you strict with sticking to it or do you also allow money for fun things like date nights, travel and parties?

When it comes down to monthly budgets, “financial nerds” are the ones who are crunching numbers down to the penny to make sure everything is accurate and goes according to plan. On the other side of the coin, we have the free financial spirit mentality. These are people that tend to go with the flow with their spending habits, instead of sticking to a strict monthly budget. They will never turn down a night out with friends because of how much it will cost and it’s not important enough to them to pick a more conservative financial approach to living just to save a few bucks. 

Having a bit of both in your mentality when it comes to budgeting is important. You don’t want to live beyond your means, but you do want to make sure that you plan time with family and friends and get the chance to relax on vacations. If you plan well, you can include those outings and trips into your budget and still live within your means.

Safety vs. Status

Do you tend to spend money on material possessions to keep up with the latest trends, or do you feel better having more money in the bank?

A person that favors status over safety is someone that would rather buy a new car than have money to fall back on in case an unexpected event occurs. People who lean towards safety are those who feel secure knowing that they have money on hand in case they lose their job, get into an accident or are faced with other unexpected expenses.

Whatever camp you fall into, it’s a smart move to have some type of emergency fund. Life is unpredictable and you never know what each new day will bring. Knowing that you are prepared to navigate financial setbacks, no matter what life throws at you, is an amazing feeling and will take some of the pressure off in stressful situations. For example, if you got laid off from your job but already have enough money saved up to cover your expenses for the next few months, you will be in a much better of a place than the person who just spent their last paycheck on a new designer bag. 

Family & Childhood

What did you learn about money during childhood? The attitudes about money that you were exposed to when you were growing up influences how you view your finances in adulthood. If your parents spent money freely and never discussed budgeting, those behaviors can impact how you approach spending when you start getting your own paycheck. However, if money was always tight you may have learned about budgeting from an early age and even had a kids savings account. Those experiences can make you much more likely to prioritize saving money when you become an adult. 
 

How does the psychology of money affect my decisions? 

The psychology of money affects all the small decisions that we make each day. Do you drive an extra 10 minutes to get to a cheaper gas station or do you go to the overpriced one that you’re close to because of the convenience? Do you make coffee at home or stop at Starbucks every day on your way to work? If you are aware of the tendencies that you have with money, you can start making small changes every day to switch to financially healthier choices. It may be easier said than done, but it is possible! Some of us need to start making coffee at home a few times a week and some need to learn how to splurge on the fancy coffee drink every once in a while! No matter which category you fall into, if you are aware, you can take steps in the right direction. 

Need help with money management? Contact us at Patriot Bank or visit a Southern Connecticut branch today.