How to Improve Your Relationship with Money
If you feel that you have a complicated relationship with money, please note that this is completely normal – most people would face some challenges when it comes to finances. In this article we will talk about how to improve our mindset when it comes to money, whilst also giving some practical tips on how to manage finances.
Your relationship with money
Before diving into the practical aspects of money management, it is essential to perform a self-analysis and understand what your current relationship with money is in order to support the entire process.
Our relationship with money often stems from how we were raised – a concept psychologists refer to as “money trauma”. The idea behind money trauma is that caregivers often share stories about money and the household’s financial situation with children. These stories, that are often repeated using the same words, can stick with you for a long time, even in adulthood. For instance, if you grew up in a family with limited financial means, your parents might have frequently sad “we can’t afford that” or “money doesn’t grow on trees”. You might therefore start believing that money is scarce, and that you need to be careful about spending. As an adult, you might still hold onto these beliefs and, even if you start earning some good money, you might still be afraid to spend it for fear of losing it. Conversely, you might also react by spending excessively to compensate for what you lacked in childhood. However, money trauma isn’t limited to families who struggled financially. If you were raised in a wealthy family that was reluctant to spend, you might develop similar habits. Or, if your parents spent too much and spoiled you, you might struggle with boundaries and overspend.
Reflecting on the stories your family told you about money over the years and identifying your money trauma can help you understand how you perceive money today.
In my article on the Pygmalion effect, I explained how powerful our beliefs about ourselves can be. If we believe something about ourselves, our brain will do everything in her power to make that belief come true, because we dislike being wrong. We all have limiting beliefs about ourselves, and this is especially true when it comes to money.
If you think “I am not good at managing money”, “I overspend”, “I can never save” or “money never lasts”, according to science you might engage in behaviours that make those beliefs a reality. It is therefore very important to identify your limiting beliefs and try to shift them to more helpful ones. For example, “I am not good at managing money” can become “I manage my money well, and this will lead me to financial abundance”.
Another exercise you can try involves describing in one word what does money mean to you. Some might see money as “power”, “growth”, “safety”, “success”, “status”. How you perceive money can say a lot about your relationship with it.
Finally, I believe it is very important to discuss fear. Many people experience fear when it comes to money – fear of losing it or even dealing with it. Some avoid checking their bank accounts for weeks because it’s too overwhelming. Others fear getting involved in financial matters like investments. And I understand – money can be a stressful topic, especially in these difficult times. But if we don’t let go of fear, we’ll remain stagnant and our relationship with money won’t change.
The best way to combat fear is through learning. Watch videos, listen to podcasts, and read books about money – all of these can help alleviate fear.
Money Management
Managing your money could require some time. For this reason, the first tip I have for you is to set aside at least 30 minutes to an hour each month to review your finances and allocate your money appropriately. Remember: only a small percentage of your salary is actually YOUR money.
To understand where you should put your money, we will use Maslow hierarchy of needs, that explains how, as humans, we need to satisfy our needs in a certain order. The first step is physiological needs.
50-60% of your salary (depending on where you live as some cities are more expensive than others) should go towards, bills, groceries, fuel/transport, and rent. Specifically, your rent should only equal 30% of your salary.
Next, we have safety needs.
20% of your salary belongs to your future self. Use this portion to cover any debts (credit card debts, car, or other insurance) and to contribute to your pension and investments. Discussing investments in detail is beyond the scope of this article, but plenty of experts online can guide you. Start learning about investing, particularly in ETFs and bonds. This could help you retire early, contribute to your future wealth, and possibly be part of your pension. Investing is the only way to beat inflation, and if you don’t want to be working in your 80s, start investing NOW.
It is also important to have a high interest savings account with at least 3-6 months of expenses for emergencies. You’ll thank me for this. You could also have an additional savings account for future purchases, like an expensive accessory, a car, or a trip.
Once we have addressed our physiological and safety needs, we can consider everything else.
The last 20-30% of your salary is the money you can consider fully yours. This is the money you can spend on the things you want: gifts to yourself and others, nights out and anything else you desire.
Feel free to adjust these percentages to suit your situation. For instance, if you live with your parents, you might not need 50% of your salary to cover your physiological needs. In that case, I would advise you take advantage of your current situation by saving and investing as much as you can.
Final tips
Marry the right person
This may sound obvious, but it especially important when it comes to money. Earlier in the article I advised you to think about a word that could describe what does money means to you. If you and your partner would answer that question very differently, it might mean that you perceive money in a different way, and this could create problems in the relationship. Besides, if you and your partner greatly differ in the way you manage your money, you could end up arguing about money very often. The best way to avoid these difficulties, is to talk about money and each person’s financial situation early in the relationship, before living together, and definitely before marriage.
Talk more about money
This does not mean to randomly ask people about their salaries, but it means to not be afraid to ask questions, especially about topics you don’t know. You could ask people what their favourite tips about money management are, and what do they like to invest their money on. Taboos around money only make people’s relationship with finances more difficult, and it can feed into the fear of money that most people would already have.
Use social media wisely
There are so many accounts that talk about money and give finance management’s tips. Following such accounts will make you able to learn new things without even realising, which will give you more confidence in managing your money overall.
Be mindful about the you talk to yourself and about yourself
Instead of telling yourself “I can’t afford that” ask yourself “how can I afford it?”. Instead of saying “I can’t buy it”, say “I am being responsible by not buying it”.
Conclusion
In conclusion, our early experiences and our limiting beliefs can deeply influence our relationship with money. But understanding and challenging the stories we tell ourselves, can make us more able to let go of fear and become more confident about money management.