HOW DO YOU MANAGE YOUR MONEY?

Executive Summary

• We are each born with different spending habits, just like we have different personality styles and traits

• Based on the different traits we have, we are more or less prone to certain pitfalls

• By becoming aware of our own traits and how we handle money, we can put systems in place to best set ourselves up for success

• The seven different spending traits are based on the book “Know Yourself, Know Your Money” by Rachel Cruze, with commentary around designing systems and practices to prevent pitfalls being original content from coaching experience

These last few months, the focus of the topics we have covered, have been more technical in nature (RRSPs, First-time Home Buyers’ programs etc).  This month, its a change of pace as we are looking at some of the softer side of financial coaching – the behavioural aspects of money. I have been working through the new book by Rachel Cruze, “Know Yourself, Know Your Money”. In this book, there are seven different traits that are used to understand habits around managing money. I will go through these traits, using my own tendencies where relevant as an example of how you can look to apply the ideas, and understand yourself better. I would encourage you to track along with us and look to identify what traits you tend to lean towards when managing YOUR money!

Note: None of these traits are “right” or “wrong”, they are meant simply to allow you to understand how you look at, and handle money. By being aware of how we look at money, we can then be on the lookout, and aware of potential pitfalls we may face based on our styles and preferences.

Saver or Spender

This trait is quite likely the easiest one to identify. When you get some extra money in your pocket such as an unexpected cheque or gift, what is your first thought? Do you want to put it in your bank account and save it for later (saver), or do you want to spend it right away on something nice for yourself (spender)?  Me personally, I am a “saver”. What being a saver means for me, is that I need to be intentional about enjoying experiences from time to time, giving myself permission to spend “fun money”. Conversely, if someone is a “spender” perhaps they’d be well served to setup an automatic savings plan from their paycheque so that they ensure they save a certain amount each month and achieve their long-term goals.

Nerd or Free Spirit

To determine which of these traits you are, I think the question to ask is: “Do I plan everything out down to the dollar? (or penny?!?!)”. If you answer ABSOLUTELY to that question, then you are definitely like me, a big Nerd. If you cringe when you even hear that question, then I would say you are more of a Free Spirit – you like to use your money “where the wind blows”. As a nerd, I enjoy planning out spending and having clear targets and objectives to help me achieve goals for myself, and my family. That being said, if I get too focused on every minute detail, I may be more prone to miss opportunities that present as “life happens”. Not to say I (or anyone should jump on every opportunity that presents itself, but, if there is a great deal we see while out shopping, I wouldn’t want to miss out on it simply because it wasn’t budgeted. The more prudent approach is to re-work the plan after to ensure its “paid for” and not financed through credit card or other debt.  If you are a free spirit, you may need to put some “guardrails” in place to ensure you don’t spend more than you can afford. Perhaps it’s a healthy “fun money” budget, or you make slightly more frequent “check-ins” on your spending vs the monthly budget to assess how your spending is tracking and course correct as needed.

Experiences or Things

While this is self-explanatory in terms of identifying the trait, the reality is that if money was not an object, I would expect most of us would enjoy a lot of nice things, and big experiences.  So, to identify our tendency, I would suggest you look at what you typically like to do, or what your fondest memories are. Do you recall family vacations where you travelled to a new place, or do you get more enjoyment out of that great collector item you purchased?  Once again, neither preference is “right” or “wrong”, its just knowing yourself and what motivates you – going places and seeing things, or new purchases and items. For me, saving up for that vacation or trip to some new place is a bigger motivator than saving for some household or personal item. What this means, is that I will have a greater motivation to sacrifice other items for these opportunities, so they make great “rewards” for achieving goals I set for myself.

Quality or Quantity

 This trait is one where it may depend on what item you are buying (ie) household cleaner vs food could be looked at quite differently 😊) – but as a general rule, what does a “good deal” mean to you?  Would you rather have a lot of a decent thing, or, only a modest amount of a great thing. For me, I generally like quantity over quality – especially when we are talking about sugary candies or meals out (who wants to go out for dinner and leave hungry…am I right?). That being said, sometimes having a little of something that is high quality is desirable (think diamond’s). This trait is all about knowing your tendency, and then catering your shopping plans around that. If you like quality, perhaps heading to Costco, or other Discount stores is the way to go. If you like quality, then perhaps you have your “everyday” shopping at the typical grocery store, but splurge once in a while at the local butcher or boutique store for a nice dinner.

Safety or Status

This attribute is about how you see (and use) money.  Does having money give you a sense of safety/security, or do you feel like having money means you’ve “made it”. Both characteristics are prevalent in the world today, and while both have merits and valid aspects, both also have downsides. Neither view is right or wrong, its all about “Knowing Yourself”, and therefore your tendencies. For example, if you look at money as a means for safety only, you may hold on to it too tightly and if you experience “loss” it could be quite stressful and traumatic. That being said, taking precautions and building a “brick house” will help you ride out those storms.  Conversely, if you look at money as a form of status, you run the risk of purchasing too many things in trying to “keep up with the Joneses”, and not plan enough for the long-term…doing what is right for you and your situation. By setting a long-term plan, while still taking opportunities to give yourself (proportionate) rewards on your journey, you can help to balance this desire in a prudent way. And always remember – we came into this world with nothing, and we take nothing out…but we can leave a legacy to future generations as we steward our resources wisely.

Abundance  or  Scarcity

This characteristic is another one of the more common items you will hear in financial circles these days. An abundance mindset is used to describe someone who is more of a “risk-taker”, believing that there are lots of opportunities and ways to bring money into your pockets. In contrast, someone with a scarcity mindset would be much more “risk-averse”, protecting the money they do control very closely.  For me, I tend to lean much more towards the “scarcity” mindset – and while that helps me to manage the funds I have well and stick to a budget - making the dollar “go far”, this can mean that I could miss out on potential opportunities.  Looking back, some of my greatest successes came when I took big, but calculated risks (eg) buying my first home at 25 as I moved to a new city, and took on a new job).  The key for me, is to take a look, set a plan to take precautions, but not let my fear of failing or irrational thoughts hold me back from potential opportunities.  Conversely, someone in an abundance mindset may need to ensure they keep a bit of an emergency fund, or “safety-lever”, where they can have an escape plan if things start to go sideways from their expectations…taking precautions and planning an escape route in case of failure does not negate or minimize the abundance mindset, it just means you are acting prudently.

Planned or Spontaneous Giving

This seventh and final trait of how you manage money is certainly not the least. One of my favourite quotes about giving and money, is this: “Money is like manure, if you let it pile high it begins to STINK, but if you spread it around, it helps everything GROW”.  When it comes to giving, its great to help out and give to other people or causes you care about.  I would also add that it helps those with a scarcity mindset to become more outwardly focused, rather than inwardly focused. When it comes to your actual giving style, you are either a planner or more free and spontaneous – interestingly, this likely trends with the “nerd” and “free spirit” traits we spoke of earlier.  Personally, I tend a bit more toward the planned giving, but at times when I feel led to share freely, and for a cause or with someone who really needs it, I don’t want the “numbers” to hold me back…by keeping a bit of extra cash around in an emergency fund, or taking a percentage of an unexpected amount that comes my way, I can help create an extra pool of funds for when needs arise (or replenish if I know these funds are coming when the opportunity occurs beforehand).

As I stated at the beginning, these seven traits are all about understanding yourself and how you manage money.  By knowing our own tendencies and habits, we can then appropriately structure our finances, and put checks and balances in place to set ourselves up for success. I hope as you read this, you got a sense of some of your habits, but also some helpful tips for how you can safeguard against possible pitfalls or trip ups. If you’d like to discuss these items in more detail, or see if working with a financial coach is right for you, you can sign up for a free, no obligation consultation at www.hopefinancialsolutions.ca/get-started. If you prefer to just track a long with us for a while, that’s great too, you can sign up for our newsletter to get more helpful info at: www.hopefinancialsolutions.ca/newsletter.

Have a wonderful spring and hope to chat soon!