The four money personalities
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Do you know your money personality? Are you a saver? Or are you a spender? If you’re unsure, local financial professional Barry Bigelow explains four money personalities and how they impact our finances.
To know how out money personality is shaped, we have to start at the very beginning! How were you raised? What money habits did your parents teach you? What money habits work for you and what don’t? Or maybe someone didn’t have a lot of money growing up and now holds onto it in fear of losing it or misspending it. We need to factor in our life experiences as well. We’re seeing it with millennials following the Great Recession. They are more cautious and proactive with their finances after watching their parents and grandparents experience financial losses in 2008. These types of experiences can impact your money personality.
The “Money-Avoider” personality are the people who believe money is bad. They feel guilty about the money they do have and believe the wealthy are greedy. It’s important to remember that if this is your personality type, there are ways you can put your money to good use. First, pay your future self by saving 5-10% of your income for the future. Your employer-sponsored 401(k) is a great place to start. If all your immediate expenses are paid for and you’ve set money aside for the future, consider giving to a charitable cause. Whether through a cash donation or purchasing specific items requested by an organization, you can use any excess cash in your budget to positively impact someone else’s life. Depending on your tax-filing situation, it may be to your advantage to itemize and deduct your charitable gifts. Of course, meet with a tax professional to see what makes the most sense come tax season.
The “Money equals Status” personality tend to link their self-worth to their net worth. This mentality can be highly emotional during times of market volatility and uncertainty. For example, if you’re putting $18,000 away for retirement a year, and then lose $50,000 in a year, it can feel like you’ve lost nearly three years of work. Consider diversifying your investments, or in other words, don’t put all your eggs in one basket. If you find that any major shifts in your investments make you anxious, you may need to adjust the amount of risk you are taking with your money. Or you may need to diversify your assets and spread them across several different asset classes with varying degrees of risk.
The “Money-Vigilant” personality is very concerned about their finances and believes in the importance of saving. But they may be hesitant to spend everything they have saved and squirreled away for retirement. Retirement is the time to finally spend the money you’ve so diligently saved. When we work with clients, we always start by asking what their goals are for retirement. Do you want to travel? Do you want to snowbird somewhere? Then we create a spending plan that outlines how the money they have worked so hard to save will help them achieve their dream retirement.
The “Money-Focused” personality believe the key and answer to life is more money. Now, we all wish we had a money tree in our backyard, but instead of thinking about the money we don’t have, let’s maximize the money we do have. First, if your employer offers a 401(k) with a company match, make sure to contribute enough to get the company match. Otherwise, you’re literally leaving free money on the table. For those age 50 and older, you are eligible for catch-up contributions with your 401(k) and IRA. In 2022, those 50+ you can contribute an additional $6,500 in your 401(k), making your maximum contribution $27,000. You can also contribute an additional $1,000 to your traditional or Roth IRA, totaling $6,000 in contributions for this year.