3 minute read
Transforming your relationship with money
Most people have a complex relationship with money. How you earn, spend and manage money may be inextricably linked to what you were taught in childhood in terms of money and values, and the way you organised this information in your mind.
For example, if your family placed emphasis on the value of education, you may have prioritised saving for your children’s education when they were very young. Or if your family spent every Sunday at church, as an adult you may tithe to the church.
Throughout our lives we maintain an interesting relationship with money. As children, many of us heard that money was “the root of all evil” or that “money can’t buy you happiness“ and “the best things in life are free”. The truth is that money is necessary in life and gives you more options, but it won’t make you happy — or only up to a point.
Are you a spender or a saver?
How you feel about money and how you deal with money will be based on how your parents dealt with it. They hopefully taught you good habits, but perhaps you are afraid to spend money because they never saved, or you can’t stop spending because your parents didn’t spend a lot of money. Did their history with money shape you into a spender or a saver? Did it make you a risk taker, or did it make you very cautious?
Money affects all aspects of our lives
Not only does your history with money affect your financial decisions, but it can also affect your relationships. If you are a saver and your better half keeps spending and going into debt, it might eventually be the last straw for your relationship.
Why is it so difficult to save money?
Educating people about the importance of saving for retirement and other financial goals is the main purpose of the retirement fund industry. People are reminded to save on a continuous basis and warned about how few people actually retire comfortably, yet most people still do not save enough. There could be real reasons for not having money available to save, out of people’s control, but very often it has to do with this money relationship.
If you reflect on how you feel about money, you will be in a better position to change your relationship with money for the better and take your biases into account when making financial decisions.
It’s important to remember that wealth has less to do with how much you earn and more with how much you save. Not only the percentage of your income, but also how efficiently you save. That is why it is crucial to make sure your savings work as hard as possible. Are you in the correct investment for your needs? Are you getting value for money for your savings? It doesn’t have to be the cheapest option if you get value from it.
Pay yourself first
One of the easiest ways to start saving more is to pay yourself first. You are not simply working to pay tax and bank fees to someone else. Allocate a percentage of your income to yourself and your goals when you are doing your budget. Don’t just rely on your retirement fund for your financial goals — pay yourself extra whenever you can. Allocate a portion of any increase to yourself before the extra money disappears into daily life. And, of course, the other way you can save more is by spending less.
The difference between savings and investments
Savings in a bank account is only one building block of a good financial plan. If you are looking at your longer-term solutions, you should also be using investments — not just cash savings.
Your savings and investments should match your short-term, medium-term and long-term goals. You can also save for something general, as having disposable income creates choice and having options is invaluable.
The bottom line is that if you have a goal, you need to make sure your money works towards that same goal. Don’t keep money in cash if it is for a long-term goal when you need to outperform inflation over time. And don’t try to get a very high return over a very short period of time, because the risk you take on will likely make your money less instead of more.
