Financial Planning Friday: Hacking Your Financial Mind Part 1

July 1st, 2016 by Anchor Bay Capital's Investment Team

The recent shake up in the global stock markets created a lot of news this week.  With the doom, cynicism, humor, and information that we receive through the media in a time like this, it is a great time to take a step back and process how we react when it comes to our money.  In the next few newsletters, I am going to explain a few different money personality styles to help you better understand why you make the financial decisions that you do.  

If you have ever taken a personality test, you will know that the process can be pretty insightful and entertaining as you think about how you naturally approach different scenarios.  There are a variety of theories out there that explain how your personality affects your behavior.  Research into inherent personality traits has been around for a long time.  In Ancient Greece, Hippocrates identified the Four Temperaments that each individual could be categorized within.  More recently, popular theories such as “The Color Code” by Dr. Taylor Hartman or the Meyers-Briggs Type Indicator have provided individuals with an understanding of their predisposed behavior.

Figuring out why you do what you do not only creates awareness of your own actions, but also helps you see how you interact with the people that are closest to you.  With this in mind, when you understand your money personality style, it will help you see how your natural responses affect your progress toward your financial goals and your ability to discuss your finances with your spouse or partner.

Let’s start at the beginning.  When you think of your first interactions with money as you grew up, are your feelings good or bad?  Do you find yourself repeating certain habits throughout your life when it comes to your finances?  Where did those habits start?

Take a moment with this and even try writing down experiences that come to your mind.  You may begin to see how your behavior toward money has been affected by your responses to certain experiences in your life.

Early in my career I was trained on how to recognize personality traits based on Social Style Theory.  Essentially this theory categorizes people into four quadrants based on how assertive or responsive they are.  When assisting clients with a financial plan, I have learned that similar social styles can be applied to a person’s mindset toward their money.

Understanding Your Money Personality Style

One question I always ask a new client is this, “Let’s say you received an unexpected windfall of $10,000.  What would you do?”

• Plan a big vacation or go on a shopping spree.
• Share your good fortune with a friend in need or do something nice with/for a family member.
• Find the best interest available while you study the options for investing the money for optimal returns
• Put the money to work by paying off debt, investing and buying what is necessary.

While you may in reality choose a combination of these things, you must decide what would be your first preference.

As I review the answer to this question with a client, we discuss why they feel they made the choice and what they think they were trying to accomplish in this decision.  Through these discussions, I have found that what we really value in our life determines our response to financial decisions.  Our values can be categorized into four money mindsets:

Responsibility Mindset: You feel that your financial decisions should be based on your commitments and what needs to be done.

Protection Mindset: You feel that your financial decisions should be based on keeping what you have and avoiding risk.

Experience Mindset: You feel that money comes and goes.  Experience is what matters and what you want to spend your money on.

Efficiency Mindset: There is an order to the way you make financial decisions.  Everything has its place when it comes to your money.

In the next newsletters, I will explain these different mindsets and their benefits and disadvantages when it comes to your progress toward your financial goals. An understanding of your money mindset, will assist you in improving your financial decision process, understanding where you may need help, and how you interact with others regarding your finances.

In the meantime, you can always contact us for personalized guidance or assistance.