This is a guest post by Cassy Parker. Cassy reminds you that the best and simplest way to build wealth and manage money is to have a healthy relationship with money.
The best and simplest way to build wealth and manage your money isn’t about some secret investing formula, starting a Fortune 500 company, or even, necessarily, earning more money.
The key to wealth building over time is simply this: to have a healthy relationship with money.
People who have a healthy relationship with money are people who are in charge of their money – rather than letting their money be in charge of them. And this simple psychological switch allows individuals in a healthy relationship with money to pay off debt, build wealth, and enjoy their lives more.
Many of us never really think about our actual relationship with money. We make spending, saving, and earning decisions without ever thinking about our underlying money patterns. Here’s how you can break that cycle and build a healthier relationship with money:
Start With Understanding
The first thing to do when it comes to any psychological task – like improving one’s relationship with money – is to understand where you currently are and why you got there.
According to one PsychCentral blog post, each of us has a “script” when it comes to money. This script is based on our own personal experiences with money as well as our family’s history.
For instance, someone who grew up in a family that worked hard just to make ends meet may struggle to spend money, even when they have it. On the flip side, someone who grew up in a free-spending family may struggle with over-spending money, even when they don’t have it.
But don’t just look at your family history. Look, too, at your own money-handling style. Are you the type of person who frequently spends beyond your means? Or are you at the other end of the spectrum, never spending a dime if you don’t have to because you’re so afraid of being poor? Maybe you’re somewhere in between.
Either way, it’s important to know what you’re like, personally, when it comes to money.
If you’re trying to bring both yourself and your partner or spouse into a healthier relationship with money, you should look at both of your separate money-related histories as well as your separate styles with money. Then, look at your style as a couple, which may be one of arguing over spending choices or even spending too much together on a consistent basis.
Detail Your Money Mistakes of the Past
Part of gaining understanding about your relationship with money is looking at mistakes you’ve made in the past. For many of us, these mistakes will be times that we spent too much. But if you’re a bit miserly, your mistakes might be sacrificing too much happiness or comfort for yourself or another in order to keep from spending money, even when you could afford to.
Take a few minutes to jot down your most blatant money mistakes of the past. Then, look for patterns. Are you constantly overspending on the little things? Are you always applying for new credit, and harming your credit score in the process? Are you saving only in low-yield accounts because you’re afraid of investing risks?
The goal here isn’t to berate yourself – or your spouse/partner – for every mistake. It’s simply to understand what mistakes you’ve made in the past and to get a handle on patterns of behavior. Once you understand where you tend to make mistakes, you can take these next steps to avoid future ones.
Spend Based on Your Values
One of the key things that experts tell you is that you should spend money based on your values.
Here are a couple of examples of how people might spend based on their value systems:
- Ellen is a stay-at-home mom to two toddlers, and her family places high value on health and togetherness. So instead of spending a lot of money on clothing and dining out, her family has a liberal grocery budget, which Ellen uses to create home-made organic meals. Plus, they go on a fun vacation at least once a year, and scrimp in less-important areas to add to their vacation fund.
- Josh is a single twenty-something who values relationships with his friends and enjoys playing video games. He rents a smaller apartment than most of his coworkers, but uses the money he saves on rent and utilities to keep up with the latest video game releases and to take his pals out to dinner on a regular basis.
Both of these individuals are spending in line with their values. Since most of us can’t afford to spend liberally in every area, it’s essential to figure out what makes you happy and what you value most. Then, figure out how to put more money into those areas, even if it means scrimping and saving in less-important areas.
Create a Safety Net
One of the keys to having a healthy relationship with money is not having to think about money all the time.
Think about a time in your life when you were strapped for cash. You probably spent a significant amount of time thinking and worrying about money, right? When you have no safety net, this is especially true.
That’s why it’s essential to have some sort of safety net according to a recent CreditDonkey blog post. If you have savings, great. If you don’t, using a credit card with no annual fees can be a good way to have some sort of safety net in place for minor emergencies.
This one little step of knowing you’ll have money if the car breaks down or the washing machine needs fixing will make a huge difference in how often you think about money.
Don’t Take on Too Much Debt
Finally, it’s important to be sure you’re spending within your means. Those who have a lot of debt tend to spend more time thinking and worrying about money, even if they have plenty of money coming in.
This doesn’t mean that you can’t begin improving your relationship with money now, even if you are in the midst of debt. In fact, forming a healthier relationship with money will likely make it easier for you to get out of debt and to keep from going into more debt in the future!
These steps can take time, especially if you’re a big spender or are in a financial crunch. But with these ideas, you can create a healthier relationship with money, which can then help you build wealth for the future.
