What’s your relationship with money? How do you approach financial matters? Here’s how your money mindset can help you achieve greater success and satisfaction. Do you know your relationship with money? Are you more of a thrifty person, more of an epicurean, or are you completely indifferent to money and hardly ever think about it? Are you stressed because you feel like there’s never enough of it, and that at the end of the month, your bank account is empty? Do you talk about money freely, easily, or does it make you feel uncomfortable and embarrassed? Perhaps you have a solid cushion in your account and are thinking about how you could get more out of it?
I recorded a podcast this week. My guest was an actress, and she said, “For me, money is a rational thing, a means to an end.” In seminars, I find that for many people, money has very personal meanings. For some, money is linked to strong emotions and often great fears and stress, while others view it very coldly and find anything that revolves around numbers, graphs, and facts rather boring.
How Money Emotions Can Influence Your Success and Health
Regardless of your relationship with money, your money personality and how you handle your emotions play a role in your success when saving, investing, or trading. For example, studies have shown that panic investing can lead to a loss of 8 to 10% of investors’ wealth.
But knowing your feelings about money can help you do more than just invest. It can help you reduce stress in your relationship—data shows that money is one of the most common points of contention in relationships—increase your life satisfaction, and even make a positive contribution to your health. For example, PwC research shows that money can be a leading cause of workplace stress, cited three times more often than, say, worrying about losing your job.
Napoleon Hill described as early as 1937 in his book “Think and Grow Rich” that success with money also begins in the mind. To do this, he interviewed successful people for 20 years and wrote a 13-step guide to success. I would be very interested to know how many of the 60 million readers have put it to good use so far.
What is a “money mindset”?
The term “money mindset” refers to your attitude, beliefs, way of thinking, philosophy, and outlook toward money and your current and future financial situation, as well as how you evaluate them. In short, your “money perception”—how you view money, the importance you attach to it, and the positive and negative feelings you associate with it.
Your attitude toward money is not only determined by yourself, but is also influenced very early in childhood, around the age of 5-7, and throughout your life by your environment, experiences, and upbringing. To get to know yourself better, you can ask yourself questions such as:
- How did we talk about money, and how did we manage money at home?
- What does money me, and how important is it to me? What does success mean? For example, financial security, freedom, time, etc.
- Making money does…
- Being rich means…
- Talking about money is for me…
- My biggest fear about money is…
- What are my principles regarding money? For example, “Money alone does not buy happiness. Money corrupts character,” etc.
The goal of this exercise is to identify the patterns that influence your relationship with money. Write down your answers and examine them with a step back. What stands out to you? Are there hidden fears or positive and negative feelings that significantly influence your decisions or behavior, without you having previously been aware of them?
What is your money personality?
To get to know yourself better, and perhaps even your loved ones better, you can try classifying yourself into a money-related personality. There are different models for this purpose; Ken Honda, for example, crystallized the following 7 types in his best-selling book “Happy Money”:
- Saver: You save constantly, most of the time even without a concrete goal, because you only feel protected by saving.
- Spendthrift: You often spend money, even unnecessarily, without much thought, for yourself and others, and you try to compensate for stress by making purchases.
- Money Seeker: You view financial success as a form of self-affirmation and devote the majority of your time and energy to your work.
- Indifferent: You think little or nothing about money, you don’t let it influence you, and you are content with a small budget.
- Prolix: Mixed form, earning money is important to you, but you also really like spending it.
- Gambler: You take risks for high gains.
- Worried: You are always worried about money, whether you have a lot or a little, and the cause is often a lack of self-confidence.
Of course, these are generalizations, and perhaps you and your loved ones fall into different categories, depending on your life circumstances. For example, my children are completely different; one is more talkative and the other is more spendthrift.
Whether or not you can identify with a personality type, a little introspection about your relationship with money and the feelings you associate with it may seem a bit esoteric, but it can help you in many ways, including helping you master your emotions to invest wisely.
Investor emotions
While your attitude toward money influences your behavior in various life situations, there are several emotional traps our brains like to set when it comes to investing. Here are some examples and what you can do about them:
- Confirmation bias: This means we interpret information in such a way as to confirm decisions already made. In this case, it is useful to consult several sources and to think critically: could I also be wrong, and why?
- Information bias: Indicates the difficulty in finding and interpreting relevant information, for example, if you are investing for the medium term (over 5 years) and your decisions are currently guided by daily price fluctuations. In this case, it would be preferable to interpret a longer period.
- Loss aversion bias: means we experience losses as up to twice as painful as the happiness we feel when faced with equivalent gains. This can lead us to weigh negative information differently, for example, and to change our long-term strategy in the event of sharp fluctuations in the stock market.
- Oversimplification: The evergreen investing adage says you shouldn’t invest in something you don’t understand. Those opting for more complex solutions and products should take the time and effort to understand what’s happening with their money to avoid surprises and decision-making errors.
- Herd instinct buying because everyone else is buying, selling when everyone else is, for example, ouout fear of loss, leads to a roller coaster of emotions when investing and the resulting mistakes.
To stay on track when investing, it’s helpful to establish an individual risk profile so that the chosen strategy matches your assets and money mindset. Online tools and banks do this as standard.
It can also be helpful to follow a clear and diversified investment strategy with corresponding objectives and, for those who wish, to focus on different pots, for example, for short-term speculation and long-term investment. This way, emotions and experiences have a place and a protected framework without you having to immediately change your long-term plans.
