Every person has some unconscious beliefs about money. For example, you may think that you don’t deserve to be rich, or that you need more money to be happy. Such beliefs could result in money management mistakes even if you’re not aware of it. But harmful money thoughts really don’t need to last forever. Here’s what you need to know in order to diagnose harmful financial psychological dependence and how to get rid of it.
Financial psychologist Bradley Klontz has introduced the term “money scripts” which describes our core financial beliefs. We write these scripts for ourselves at the beginning of life and then have to follow them. Klontz will identify four types of money beliefs: avoidance of money, money worship, money status, and money vigilance. Let’s look at each of them.
Those who follow this script either believe that money is bad, or they don’t deserve to live in affluence. Such people might think: ”Good people shouldn’t care about money”, or ”Rich people don’t deserve wealth.” Perhaps they believe that money is a source of problems and therefore it is better to make do with less.
If you belong to this category, you believe that money will automatically bring you happiness and fulfillment. According to this script, it is considered that you can never be too rich and it’s not possible to be poor and happy.
If you’re in money status category, your self-esteem depends on the size of your wallet — you believe that your success is measured by your income and equate yourself and what you own.
A person who keeps a watchful eye on his finances can be called frugal or even stingy. He believes that before buying something you need to carefully examine all available offers and that you should always save money for a rainy day, although this rainy day often never comes. Typically, this approach to money is beneficial, but it can lead to very risk-averse money behaviors, and you lose more than gain.
Once you realize your money script, you will see the way it affects your money decisions.
Your attitude to spending is often associated with your financial psychology. If you avoid money, then you’d prefer not to think about it and often make rash spending. If you belong to this psychological type, it is easier for you to make purchases without assessment of their impact and deal with credit cards overdrafts — than to learn how to draw up a personal budget and keep track of your expenses.
Money worshippers and status seekers often spend more than they should — they are also vulnerable to overspending. People with these money scripts often are well aware of how much money they are spending. But for them, pride in owning an expensive item is more important than a positive account balance or the ability to live without debts.
The money vigilantes are prone to underspending, which can lead to emotional distress and, in the long run, to money loss. For example, you will run in old running shoes, saving $ 65 on buying a new ones, but as a result you will get an injury, the treatment of which will cost you thousands of dollars.
Not everyone knows how to save money for the future. In part, this can be explained by stagnant wages. However, the attitude to savings largely depends on financial psychology. If you’re a money avoidant person, you’re uncomfortable with money because you consider rich people are immoral or bad. You can even do something that hurts your savings don’t feel guilty about having money.
If we talk about the money worship and money status scripts, such people prefer not to save money, but to spend or even waste it. However, this doesn’t mean that you are not putting money aside. After all, your savings can also be a way to impress other people.
The money vigilant scenario assumes, people care about saving for the future that is a good thing. But sometimes it’s worth to dip your savings. If your financial decisions are based on fear, it isn’t the way to go.
Financial psychology also influences your investment choices. For the money avoidant investing seems too risky and difficult — after all, if you don’t care about money, then there is no need to make difficult decisions. This type of personality often follow the crowd, buying so-called “hot” stocks and getting rid of them when the rate drops, without thinking about the consequences.
Money worshippers and money status seekers make risky investments — partly because they are afraid of “missing a boom” and want to get rich as soon as possible. As a result, they often invest in financial bubbles and get-rich-quick projects.
The money vigilant might also refrain from investing, because the fear of losing money in a market downturn. When they do invest, they prefer investments in which their fixed capital will be safe. It seems to be a safe bet, but undermines the purchasing power of money, because inflation will outpace increase.
Although your money script may force you to make the wrong decisions, it is important to understand that it is neither right nor wrong. These are just glasses through which you look at the world. If you realize what your money scenario is, then when you make the next important — or even minor — financial decision, check yourself. Is the first thought that comes to your mind the best option? Or does she just let you stay out of your comfort zone?