While I generally focus on the positive actions we can take to improve the odds of achieving Financial Freedom, it’s can also be equally as important to identify and understand where each of our individual money weaknesses lie.
While it’s great to consistently build our money skills, it’s only when we take a critical look at our individual financial tendencies and become intimately aware of our poor habits that we can take effective action to proactively combat them, and prevent them from steadily eroding even the best of financial plans.
So here are 5 of the most common personality traits that can leave you struggling to build your savings, and what you can do to keep those traits in check.
1 – The Status Spender
We all know someone like this. If you don’t – it might be you. The person who succumbs to the “keeping up with the Jones’s” mentality. Regularly spending more than they can afford to ensure they aren’t outdone or outshone by their neighbours, friends or family.
This trait often stems from a place of insecurity and concern about how others perceive us, and a need to appear equally (or more) successful than those around us, or what we feel others expect of us.
This is a trait most often found amongst men, as well as higher income earners. Men suffer from this trait more often because of the engrained societal pressure that they are expected to provide for their family. If you don’t feel you are meeting these pressures, it can result in excessive spending in a effort to provide the appearance of desired success. The same is true of people who occupy positions that are socially recognized as high income earners (think doctor’s, lawyers etc). Society has grown to expect people in these professions to live a certain way, have a big house, drive a fancy car, and these societal expectations can weigh heavily when making appropriate lifestyle and spending decisions.
Unfortunately the over-spending incurred by a Status Spender results in more stress, more feelings of inadequacy, and more desperation to maintain the facade of a given lifestyle.
Bottom line, this trait can pose a huge stumbling block in getting control of your finances, and it has the ability to spiral downwards quickly, with dangerous outcomes psychologically. If you possess this trait, it’s essential to both recognize it in yourself, and implement safeguards to avoid falling into the over-spending trap.
The best way to do so is to recruit your spouse to share in every aspect and decision of the finances, so long as they are not also a status spender. If they are, find a close confidante or personal finance advisor who you can discuss your finances with openly, and strategize about future financial plans, setting firm rules about your budget and appropriate lifestyle expenses.
By creating someone you must be accountable to for your spending decisions, someone who is aware of your true financial means, you will build a much stronger and more direct expectation to play within the financial rules you and your financial partner/advisor have set. And generally, people who are status spenders, strive to meet outer expectations.
2 – The Super Shopper
Marketing companies favourite customer. The person who is constantly looking for the high of the next purchase. The super shopper can come in many varieties, from the person who indulges in high end purchases for themselves, over-the-top gifts for others, or can’t resist that next big “deal”. But there is no super shopper trait more dangerous to your pocketbook than the super shopper who purchases gifts for others anytime they see a “deal”.
Why is that breed of super shopper so dangerous? Because its oh so easy to justify. People who have this habit will buy endless amounts of unnecessary stuff, all while rationalizing that it’s ok because not only is it for someone else, they also got it at a steal of a deal, so it’s especially ok.
If your that person, I have one word for you. STOP.
It’s not ok. It’s not just $10 here or $100 there. It’s hundreds, if not thousands, of dollars annually. Not to mention a total and complete waste of your hard earned money. You might as well be throwing cash directly into a garbage bin, because it’s almost certainly what people are doing with the “bargain” gifts you are giving them.
The overall super shopper trait can arise from many issues, in large part because the “high” of purchasing can be addictive in nature, but so can the happiness boost of giving someone else a gift.
So whether it’s an overall lack of self-esteem and you’re looking for the quick confidence boost of a new outfit, or you’re not feeling sufficient love and affection and supplementing through gift giving, chances are the constant purchasing is doing very little to fill the void motivating the spending. At least not in any meaningful or sustained way.
In order to combat this trait, set a specific extraneous spending budget, make it a LOW amount, and hold yourself to it. By giving yourself a set amount, you leave room to make some purchases without completely cutting yourself off cold turkey, but you keep it within an amount that works with your over all financial plans.
3 – The Over Confident Investor
If you find yourself investing for the short term, actively trading, or even day trading, you need to be brutally honest with yourself about a few things. Does your overall knowledge truly align with the investment decisions and risks you are taking? If you are an average investor, I can tell you quite certainly the answer is no.
For the majority of investors, without the assistance of a professional, ETF’s and index funds are likely the way to go when it comes to investing in the market.
Even if you consider yourself an above average investor, AND you think you are doing pretty well at it, the reality is, all that active trading results in a whole lot of fee’s. Fee’s that often end in an overall lower average return than the typical long term hold investor.
The urge to actively invest and make big moves in the market with the hopes of hitting it big can be a hard one for some people to resist. Especially if you already have a habit of doing if. That’s because playing in the stock market provides the same chemical brain reactions as gambling. And lets be honest – if you are taking huge risks in the market, is there really much of a difference between that and sitting in a casino? Like all gambling, active trading can become extremely addictive, luring people to invest more than they can afford to lose, and clouding their judgement with emotion.
If you think you might suffer from this trait, taking a hands off approach to investing is most likely the right answer for you. It can be hard to sit back and do nothing when it comes to investing, but sometimes doing nothing is the best decision you can make. Retain the services of a professional to manage your investments, or look to ETF’s and Index funds for a long term strategy.
4 – The Passive Patsy (“It will all work out”)
I love people with a positive mentality. People that see the world from the perspective that the glass is always half full. BUT, the “things will all work out” approach that some people take is not about being positive, it’s about being passive.
Believing that things will just work themselves out, without any planning on concrete action on your own part, is like throwing your money into a wishing well. It’s also the stuff sold by self-help fraudsters. Put good thoughts out into the universe and good things will come back to you. Believe you can and it will happen!
That’s all fine and dandy, but without action, thoughts are not going to get you to Financial Freedom. It’s the people who possess the belief in their ability AND are willing to take the necessary action that rise to the top. And almost always, that action requires some form of hard work that is far from passive.
Wistfully dreaming of Financial Freedom, all while changing nothing in your life, is never going to result in success. After all, isn’t the definition of insanity is doing the same thing over and over, and expecting a different result.
If you possess this trait, you need to find ways to push yourself to action. To move past merely the hope that financial freedom will one day find you, and put plans in motion to make it happen.
The best way to do this is to start setting small, clear, achievable goals. Not just “I want to be financially free”, but instead goals like, “I am going to save $500 a month by cutting my spending by $300, and earning an additional $200 in income.”
That is a concrete and measurable goal. You will know clearly at the end of the month if you achieved that goal or not. Secondly, find some form of outer accountability. Whether it’s your spouse, a close friend, or a financial independence group, find someone in your life who you can talk to about your financial goals and what you want to achieve. It’s like Weight Watchers for money.
5 – The YOLO Believer
Oh the YOLO philosophy. From a finance perspective, this is such a dangerously reasonable excuse used so many people to justify their overinflated lifestyles and spending.
It can be a hard one to argue. We all know someone who has experienced the untimely loss of a loved one. The closer to home, the more sobering it is to realize how fragile life can be. It can certainly drive even the most financially frugal to loosen the purse strings and live for the moment. It’s a compelling concept, one we should likely all aspire to apply in moderation, while staying within our financial means.
The problems arise when people take this philosophy and use it to justify irresponsible spending and behaviour that consistently exceeds their financial means.
Focussing solely on your current self (and family) and giving no thought to the needs of your future self (and family), is simply reckless. And while it’s true, any one of us might not have a tomorrow, that doesn’t mean the appropriate response is to fail to provide for your families future by constantly indulging in the moment.
If you find yourself consistently overspending, and rationalizing it with a live for the moment excuse, it’s probably time to start a want’s list. Anytime you identify a want that exceed’s a set dollar value, it goes on the list. You can prioritize the items on the list in anyway you want, anytime you want, but save the money before you get the item. This serves you in a few different ways. It forces you to wait before making a purchase, significantly cutting down on impulse buys. It also puts all the “wants” in a single place, so you can compare, analyze, and assess what is really important to you. AND it requires you to save the money before you make the purchase.
For most people, by the time you’ve actually saved the money, I would venture to guess that at least 75% of the “wants” are no longer something you really care to spend the money on. They were impulse purchases that seemed important or relevant at the moment, but really wouldn’t have served to have improved your life in any significant way.
We all have some mix of these 5 traits in us. What’s key is to take the time to recognize the traits, and the underlying psychological motivators behind them. Once we do so, we are much more able to consciously control our behaviours and habits, rather than allowing them to control us.
Learning to dig a little deeper to see the motivations behind your financial behaviours is one of the biggest steps you can taken in reducing your overall spending, and propel you forward on your path to a sustainable financially free life.