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Do you worry about money even though you have a steady income and a healthy retirement fund? You may be a “security seeker.”
Do you live in the moment without thinking about saving for the future? You could be an “avoider.”
Some financial planners, credit counselors and psychologists say recognizing your “money personality” is the first step toward financial health. Knowing what drives your financial decisions, they say, can help you reach smart money goals, whether that’s spending less on impulse purchases or saving more for retirement.
“We have these beliefs clunking around in our heads, and for many of us it’s been passed down from our parents,” says Brad Klontz, a financial psychologist and associate professor at Creighton University. Those internal beliefs are formed by your childhood experiences, the community you grew up in and the habits of those around you.
Experts have identified four common personality types; you may be a mix of these or evolve from one to another as your financial situation changes. Identify your personality type and learn how to manage your money beliefs:
1. The spender: Also known as the “risk-taker” or “giver,” you like the act of spending money and often do it impulsively. You’re the person who often makes impulse purchases at the checkout, showers gifts on your loved ones or takes risks with your investments. You’re also likely to have credit card debt and not much saved for emergencies or retirement.
If you’re a spender: Set limits, says Tasha Bishop, director of operations and development at Ohio-based Apprisen, a nonprofit credit counseling agency. Before you buy something, give yourself a 24-hour cooling-off period to allow a more rational decision, she says.
For times you’ve splurged, look back at the emotions you experienced at the time of purchase. Did the splurge make you happy, if only temporarily? If you’re a giver, why do you spend money on someone else? If you’re doing it to make yourself feel better or to feel liked, says Bishop, then learn to just say “no” to spending on family and friends.
Next step: Build up an emergency fund and avoid using your credit card for impulse purchases. Longer-term, look into your options for paying off debt.
2. The saver: Also known as the “hoarder,” you are the opposite of the spender. You are watchful about your money and love finding bargains. You probably have an emergency fund, retirement savings and a financial cushion just in case something goes wrong. You may feel uncomfortable talking to others about money.
If you’re a saver: The good news is you’re already careful with your money and likely have solid financial habits. But allow yourself to enjoy what money can buy once in a while, says Elaina Johannessen, program director at LSS Financial Counseling, a nonprofit credit counseling firm in Minnesota.
Your reticence about money may hold you back from asking for a raise or knowing how you stack up against peers, says Derek Tharp, a certified financial planner at Conscious Capital in Iowa.
Next step: If you have questions and can’t talk to your loved ones about money, try a nonprofit credit counselor.
3. The security seeker: Much like the saver, you are careful with your finances. You may derive a sense of security from wealth, especially if you didn’t have a lot of money earlier in life. You may also worry too much about financial decisions that involve spending, whether it’s buying a house or living off your retirement savings.
If you’re a security seeker: Learn to set financial goals to avoid the anxiety around big decisions, Bishop says. “Understand that there are going to be a thousand options,” she says, and if you align your decisions to your financial goals, then “the decision you make is going to be the best one for you at that time.”
Next step: Try talking to a fee-only financial planner or credit counselor to set financial goals.
4. The avoider: When was the last time you touched that stack of bills lying on the counter? You don’t want to think about money, or maybe you know there are things you should be doing with your money but are too overwhelmed to begin. You don’t have an emergency fund and you haven’t thought about your financial outlook.
If you’re an avoider: Take small steps toward understanding your finances. Pick a day of the month when you open all your bills and check your account balances, says Bishop. Pick a day of the year to check your credit score, she says. Ask family or friends to hold you accountable to those habits.
Next step: Before you tackle anything, start an emergency fund. Set up an automatic deposit so part of every paycheck goes to an emergency savings account so you don’t have to think about it, Johannessen says.
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Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @ajbombay.
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