What is your relationship with money?
Money. More difficult to discuss than politics or religion, but more important. Why do we find this subject so difficult? We each have a different relationship with money. If you ask some, they clearly centralise their universe around money. Ask someone else, and money comes as easily as it goes. I asked a recent Finance graduate what she thought about money, and her response was a quote from her favourite book:
“The loony legacy of money was that the arithmetic by which things were measured had become more valuable than the things themselves.” – Tom Robbins, Skinny Legs and All.
There are two main types of unhealthy relationships with money. You will surely recognise some people you know in these descriptions. The first is the type that easily attracts money, but never seems to be able to hold onto their wealth. The second is the type that seems to never be able to get enough money to pay their bills or to live well, they are eternally broke.
“I’ve got bills, I’ve got to pay, so I’m gonna work, work, work, everyday” Lunch Money Lewis
There are many factors that determine our wealth. Our relationship with money is typically determined in our youth, long before we earn a wage or have to pay a bill. Your first impressions about the role money played in your family may have been formed too early to remember. Many of those with parents who went through the depression are in an endless cycle of making more money than they subconsciously expect to, given that we live in a different world now, and then feeling guilty or uncomfortable enough to sabotage their wealth. These same feelings are evident in physical and emotional health, as well as financial health.
The cornerstone of economics is that investors act rationally. Yet, everyone understands that this is fundamentally untrue and, for the most part, unattainable. We do not make investment decisions (or most decisions) by using rational thought. Our decisions are made by our emotions (or superstitions), and then we try to back it up with intellect.
Here is an example to test your rational thought:
You have saved $1000 and someone gives you a hot tip on stock that would double your investment in one year. You cannot access the funds for this year anyway, you must invest either in this company, or in a bank. Do you take the investment?
Now, ask yourself the same question but this time, the $1000 is money that you have saved for your child’s education. Would you answer differently?
A good investment is a good investment, regardless of the source of money.
Understanding that we do not have a rational relationship with money is the first step to solving money problems. That’s right that second job, that promotion, that savings plan none of it will help without first changing your money mindset.
If you want to understand your relationship with money, and how to find solutions to redevelop that relationship, then feel free to contact me for a consultation.