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Small Steps to Improve Your Relationship with Money

January 2019

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Money is a highly emotional subject. Some people spend too much money while others are so frugal that they cannot enjoy what they earn. Thoughts and belief systems about money are related to a number of factors (e.g., past experiences, culture, and childhood conditioning) and drive spending and saving behaviors. Thus, to change personal financial behavior, people need to be aware of their underlying money beliefs.

Below are small steps to improve your relationship with money:

Understand Your Values - Values are beliefs about what is important to people that guide the way that they spend their time and money. With the possible exception of illegal activities, there are no "right" or "wrong" values. Examples of values include: religion, family activities, community service, earning a big salary, education, and image and personal appearance. Various value clarification tools are available online.

Beware of Heuristics - Heuristics are "mental shortcuts" that people use to simplify financial decisions and avoid taking time to research and analyze an issue. Examples include extrapolating past events into the future, overemphasizing recent market trends, and generalizing the personal experiences of a few people broadly.

Overcome Your "Money Baggage" - "Money Baggage" is harmful thoughts and beliefs about money such as "My net worth determines my self-worth," "Money is something to fight about," and "I am only worthwhile if I can show off my success." Once people are aware of their "baggage," they can begin to reframe their thoughts.

Identify Your Spending Leaks - Make a list of small daily expenses that add up over time and develop a plan to reduce them. Strategies might include cutting current discretionary expenses in half (i.e., "meet yourself halfway") and shopping for items at a lower price point (e.g., a high-end thrift shop versus a department store).

Keep a Journal - The purpose of journaling is to raise awareness of the "why" behind spending decisions. Jot down thoughts that arise in situations involving the use of money. Awareness of spending triggers and personal thought patterns is the first step in changing behavior.

Shift Your Focus Away from "Stuff" - Financial therapists often recommend that people emphasize relationships, experiences, connections with nature, and/or purposeful activities in their lives rather than mindlessly acquiring more possessions.

"Nudge" Yourself to Save - "Nudges" refer to actions that alter people’s behavior in predictable ways. They are usually related to "choice architecture," i.e., the choices that people are provided with. An example is deciding not to opt out of auto-enrollment in a 401(k) retirement savings plan. Another is signing up for auto-escalation where workers pre-authorize retirement savings increases with increases in income.

Avoid Comparisons with Others - A generation ago, spending to match the lifestyle of others was called "Keeping up with the Joneses." Today, it is called FOMO (Fear of Missing Out).  Base spending decisions on personal needs and values rather than what others are doing.

Make Time for Financial Management Tasks - Weekends are often best to pay attention to finances because most people have more time. Financial tasks can help you better understand your finances. Examples include checking your credit report, preparing a budget, calculating net worth, and reconciling your checking account.

Get Help When Needed - Consult personal finance resources from reputable sources to avoid poor money relationships resulting from a lack of information or misinformation. Professional advisors that can be consulted include financial counselors, financial planners, and financial coaches.