It might seem strange to think about having a relationship with money. But it makes sense when you consider that everyone has feelings about money and those feelings can deeply impact our financial behavior.
Your parents, friends, and life experiences have likely helped you develop different perceptions and biases about money. Those attitudes can influence the financial decisions — both large and small — that you make throughout your life. These decisions, in turn, can have a significant impact on your financial health.
When you have a healthy relationship with money, you feel confident, in control, and satisfied with your financial situation. An unhealthy relationship with money, on the other hand, can lead to avoidance, impulsiveness, anxiety, and increased levels of stress. Indeed, research shows that money is a top cause of stress for many Americans. In a February 2022 study from the American Psychological Association (APA) , 65 percent of respondents said money is a significant source of stress, up from 57 percent in February 2021. Worries about money can lead to, or worsen, depression, anxiety, and other mental health issues.
Exploring and understanding your relationship with money can be the first step to improving that relationship and enhancing your financial (and overall) well-being.
Why the Psychology of Money Matters
It’s almost impossible to separate money and emotions. Those feelings may come from the way we grew up and what our parents showed us and told us about money. Or they may come from what we’ve learned about money over the years. Regardless of their roots, negative emotions — like fear, guilt, jealousy and shame — can get in the way of making smart financial decisions. Some examples of how this can play out:
• The market plummets and fear tells you to get out — which is likely the opposite of what up should do.
• You’re living paycheck to paycheck but guilt tells you that you should take the kids on vacation anyway.
• You’ve racked up a lot of credit card debt but feel so ashamed about overspending, you freeze up and avoid your finances altogether.
• A friend posts photos of their beautifully decorated home on social media and jealousy prompts you to buy furniture you can’t afford.
Emotions aren’t necessarily bad, however. Positive emotions, such as gratitude, serenity, and compassion, can inform our financial habits and decisions in positive ways. Feeling grateful for the money we earn can help us establish a disciplined savings plan. A sense of responsibility and optimism helps motivate long-term financial planning.
The more you understand how emotions impact your relationship with money, generally the easier it is to manage your wealth to achieve your goals.
Recommended: The Future of Financial Well-Being in the Workplace
Finding Your Money Personality Type
Money management habits tend to fall into five financial personality types. Your money “type” can impact your relationship with money and the decisions you make about how to spend, save, and invest it. Often, we fall into a combination of types and not just one. You may find you identify with one or more of these money mindsets.
Spenders have no qualms about buying things. They like spending money on material items and experiences that bring them joy, whether it’s the latest iPhone or a vacation in Hawaii.
Spenders are generous with their friends and likely to support charitable causes. However, they often make spontaneous spending decisions and tend to live beyond their means. Many spenders are also investors and aren’t afraid of a risky portfolio.
Potential pitfalls: If you spend everything you make, you can end up going broke. Also, if you spend impulsively (rather than plan your purchases), your spending may not line up with what you truly value.
Unlike spenders, savers don’t like to part with money. They continually sock away their paychecks, sometimes with no actual goal in mind. Saving simply makes them feel more secure in life.
Savers don’t keep up with the latest trends and will happily shop around, comparing prices to find the best deal. They will often drive used cars, pay their credit card balance in full each month, and watch their bank accounts grow. Savers tend to be conservative investors.
Potential pitfalls: If you save everything you make, you’re going to miss out on a lot of experiences that can bring happiness and purpose to your life. You could possibly live your whole life without spending much of what you’ve worked so hard to save.
Avoiders don’t like to deal with finances and don’t spend much time thinking about money. It isn’t because they don’t care about money — their head-in-the-sand approach to finance often stems from anxiety about money or a feeling that they don’t deserve to have money.
Avoiders will generally ignore their accounts so that they don’t have to think about money. They tend to let bills pile up and have difficulty making money decisions. Just the idea of going through their financial statements and budgeting makes them feel uneasy.
Potential pitfalls: That lack of attention can result in overdrawn accounts, late payments, and racked-up debt. Avoidance may also mean missed long-term opportunities such as not signing up for a 401(k) match.
These folks are willing to make giant leaps of faith with their money, whether it’s investing in crypto or spending more than they can afford on a home (because it’s bound to go up in value). The thrill of risk and the promise of reward bring them pleasure.
Gamblers also tend to be instinct-driven and don’t pay much attention to sound financial advice. Their risk-taking doesn’t necessarily come from a place of irresponsibility but rather strong gut feelings and a sense of optimism that everything — including their finances — will turn out fine in the long run.
Potential pitfalls: Gamblers are willing to lose it all – and they just may, which can be a huge problem if they are the primary earner in a household. They may also compensate for losses by borrowing against their retirement money or children’s college fund.
The Risk Averse
Unlike gamblers, risk-averse people prize security, financial stability, and planning. Fear of losing money or that they are not doing a good enough job managing their money is at the heart of this money type. A volatile stock market stresses them out, and they’ll spend hours finding the source of a $1.90 error on their bank statement. Above all, the risk-averse wants to be in control.
This group is usually very organized about money, which serves them well. They also tend to prefer safe investments and will be thorough in their research prior to investing.
Potential pitfalls: A more conservative, risk-averse approach can hold you back from worthwhile opportunities to grow your money. Problems can arise if you are too risk-averse to make sound long-term investments.
6 Ways to Improve Your Relationship with Money
Like all relationships, cultivating a good relationship with money takes time and effort. Below are six tips that can help you build a better relationship with money and feel more satisfied — and less stressed — about your financial situation.
1. Examine Your Behaviors
Take a look at your money patterns in the past few months to a year. Are you spending more than you are taking in each month? Have you been making impulsive purchases or investment decisions? Are you avoiding financial decisions, such as how much to contribute to your retirement account?
If you’re unsure what your patterns look like, you may want to track your spending for a few months to get an idea of what money is coming in and going out of your accounts. An easy way to do this is to link your accounts to a budget planning or money tracker app, such as SoFi Insights. These tools automatically categorize your spending and provide a bird’s eye view of your finances. This can help you quickly spot trends in your financial behavior.
2. Consider How Emotions Have Impacted Your Financial Decisions
For many people, emotions surrounding money are most acute when they are faced with a big financial decision. It might be when you’re buying a home or making another major purchase, such as a car, or when choosing how to invest your money.
Think back to what emotions you’ve felt while making important financial decisions. Were you focused on what you wanted when you made a large recent purchase, as opposed to what you actually needed? Did your decision line up with your long-term financial goals? Were you gambling on the next big investment trend hoping for a huge reward?
If you see that your emotions are causing you to make poor choices, consider how you can work through those emotions in future scenarios.
3. Set Some Financial Goals
One of the best ways to manage your relationship with money is to know what you want to accomplish financially. If you aren’t working towards anything specific, you may spend more than you should, or the opposite — never reap the rewards of your hard work.
Keep in mind that you can have multiple financial goals with different timelines. Consider where you’d like your finances to be in one year, three to five years, and 10 or more years. Here are some examples of goals you might set:
• Short-term: Building an emergency fund, buying a new car, or going on vacation
• Mid-term: Paying off credit card and student debt or putting a downpayment on a home
• Long-term: Saving for a child’s education or growing your nest egg with retirement planning
Once you’ve come up with a list of achievable and measurable goals, you’ll want to create an action plan to make them happen. This could mean cutting cable to save extra monthly cash, setting up a recurring monthly transfer from your checking to your savings account, and/or contributing more to your 401(k).
4. Communicate with Your Partner
Talking honestly and positively about finances with your significant other can help you have a healthier relationship with that person and also with money. Sharing how you feel about money and the attitudes you learned from your own family can help you and your partner understand each other better.
To get started, you may want to sit down together and talk about what money means to you, what your parents taught you about money, what you want to accomplish with it, and what your fears about money are. Having an understanding of your partner’s beliefs and perceptions can help you avoid conflict and set the stage for healthy discussions about your joint finances. You and your partner can then work together towards shared goals.
You may also want to set up a weekly or monthly money meeting with your partner to go over current challenges and anticipate future needs
5. Talk to a Financial Planner
Working with a professional can be an effective way to take emotions out of your financial decision-making. A financial planner will generally assess your current financial situation, then work with you to develop an individualized financial plan. They can help you set and work towards long-term financial goals, create a budget, build wealth through an investment portfolio, and put protections in place to help secure your future.
6. Review What Resources Your Employer Might Offer
Many companies now offer a range of financial wellness tools and resources that workers can use to strengthen their finances and make sure they’re on the right path for long-term goals. These benefits might include help with student loan repayment, a 401(k) with employer matching, and access to free financial planning and coaching.
If you work for a company that has a benefits portal, that can be a good place to start to see what’s open to you. Ideally, you don’t want to leave anything (money or support) on the table.
Everyone feels emotions about money. Exploring and understanding your relationship with money can help you take steps to overcome emotional obstacles, reduce money stress, and build a more secure financial future.
Sofi at Work offers a variety of financial wellness and financial education resources to help employees make objective decisions about money and build a positive foundation for financial success.
Photo credit: iStock/stockfour
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For information on licenses, see NMLS Consumer Access (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal housing lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.