We should all talk about money more since it is beneficial to all of us. Join the discussion with Worth More, our 2024 financial wellness guide, which covers everything from managing debt, relationships, and savings to negotiating pay increases and, most importantly, investing in oneself.
When it comes to money, we all have problems, and we all handle them in different ways. However, there’s a certain ease in sorting through your to-do list that comes with understanding where you stand financially and the reasons behind your actions. We all have a distinct money personality, which can change based on the situation and the passage of time. I can go from being a frugal saver to someone who wants to go outside, admire the daffodils, and spend, spend, spend when springtime starts to stir.
Dr. Brad Klontz and Ted Klontz, two financial psychologists, collaborated to create the idea of money personalities. Seven personality categories were later developed by Ken Honda, author of Happy Money: The Japanese Art of Making Peace with Your Money (2020). With the exception of The Saver-Splurger and The Indifferent-to-Money, I believe there are five basic money personalities that most of us fit into. The characteristics, advantages, and disadvantages of each of these personalities—The Saver, The Spender, The Investor, The Risk Taker, and The Planner—are distinct. By understanding your money personality, you may develop financial strategies that align with your innate financial tendencies. It won’t replace expert financial counsel by any means, but it will eventually assist you in handling your money more wisely.
It’s true that most social settings still frown upon discussing money; this is why Refinery29 introduced Money Diaries. However, the way we handle our money on a daily basis has a significant impact on the way we relate to other people in financial situations, be it a spouse, family member, or friend. Imagine your adventurous companion informing you about a strategy to become wealthy quickly. Should you be a cautious saver, you might respond horrified. Acknowledging the personas of yourself, your friends, and your family can help to build empathy and understanding, which can result in better financial decisions and relationships.
Knowing your money personality can also improve your well-being by reducing the worry and tension that come with making financial decisions. Instead of working against yourself, work with yourself.
Which financial personality type best describes you?
The Saver
Whoa, the one who invented safety nets, the Saver. You most likely check in with your bank account more often than your closest buddy if you identify as a saver. Rain or shine, you are the one who consistently sets aside a portion of your money. Your advantages? Strong safety net and the capacity to avoid making rash purchases. Your problem, though, is that there are occasions when you might pass up excellent investment chances as well as events that could make you happy, link you with others, and leave you with fond memories. Never forget that occasionally small adventures can result in big rewards.
What are their strengths: Because they take a cautious approach to money, savers can afford cars, holidays, weddings, and homes. The saver probably has a retirement plan and an emergency fund. Their methodical approach results in financial security.
Their challenge: It’s possible that the Saver doesn’t genuinely maximize their financial gains due to their cautious approach. Because they are risk averse, they may lose out on larger investment returns. Because of their conservative approach, individuals may pass up chances for financial gain that come with having a well-balanced investment portfolio.
Financial advice they need for 2024: Explore investment options that align with your risk tolerance. Start by thinking about investing in an index or mutual fund (make sure you consult a financial planner and/or do your own research, before investing). Additionally, make sure your savings account is a high-yield savings account so you are getting a higher return on your savings. Popular websites like Ellevest and NerdWallet are great places to find out more information. Find your balance between saving and investing, we don’t want to just put our money away, we want to make sure it grows too.
The Spender
The Spender, who is typically the real-life party as well as the financial party, comes next. Everyone desires to be in their presence. Spenders are all about savoring the present and the results of their hard work. You can’t take it with you, after all! Your ability to appreciate life and your hard-earned money is what makes you strong. The danger here is the possibility of financial instability, though. Emotions can be the cause of overspending; these can include worry, happiness, or even boredom (I’ve been there). Developing better spending habits might be aided by being aware of these factors. Make an effort to spend mindfully, which entails considering each purchase before making it. Consider whether you truly need this. Then ask yourself even more of those self-imposed questions.
Sure, I want it, but is it more important to me than having a tidy home? Is it more important to me than not having to worry about my finances when I wake up at three in the morning? Is it more important to me than leading an eco-friendly life? Making the distinction between needs and wants can be aided by this technique.
The secret is to strike a balance between living in the now and looking forward.
What are their strengths: The main asset of the Spender is their enjoyment of their hard-earned money. They don’t hesitate to savor the good things in life. They might have established a robust social safety net, if not a financial one, and they are probably going to be giving with friends and family.
Their challenge: Overspending could put them at risk for financial instability. Emotional triggers including stress, happiness, or boredom may be the cause of this. It can be quite helpful to them to identify these triggers so they can start making better spending habits. The Spender could begin by maintaining a financial journal, noting their expenditures as well as—most importantly—the emotions they experienced both before and after making a purchase. They can then investigate further activities that encourage them to consider their purchases before making them. Eliminating services that provide free or quick delivery would be a good place to start. Eliminating card information from websites could be an additional: If you have to look for a credit card and manually enter the information each time, you have more time to think about a purchase.
Financial advice they need for 2024: Spending sensibly should be the spender’s main priority. Asking important questions that help them differentiate needs from wants, such as “Will this bring me long-term satisfaction?”
The Investor
The Investor is the visionary of the financial world. If so, you’re constantly searching for methods to advance your career. You’re pleased of the fact that your money is working rather than just sitting around. The investor intends to gradually accumulate riches. The problem is that investing has a certain amount of inherent risk. You should constantly remember to “make informed decisions” and to “know that your capital is at risk,” as stated in the terms and conditions of investment products. To that end, do your homework thoroughly and diversify your holdings.
What are their strengths: By assembling a diverse portfolio of assets, such as cash in high-interest accounts, bonds, dividend-paying company shares, real estate, and so forth, the investor makes their money work for them. By taking the proactive route, you never have to rely only on one revenue stream. You understand that real financial progress frequently involves patience, tenacity, and planning because you have a long-term outlook.
Their challenge: Any type of investment carries some risk, but even though you acknowledge that market turbulence occasionally occurs, you maintain your optimism about retiring early. The investor in 2024 ought to reassess both their portfolio and approach to investing. Not sure where to begin? Commence by evaluating your investments in relation to pertinent benchmarks such as bond yields, stock indexes, and the capital growth of the property value since the acquisition. Making sensible long-term financial decisions might much depend on your ability to stay up to date on market developments and, where needed, obtain professional guidance.
Their financial plans for 2024: Investing sustainably and investigating emerging markets are two possible ways to take advantage of growth prospects. Finding out which nations are exhibiting potential for economic change can be easily accomplished by conducting a simple search for “emerging market investing” on the Financial Times website. To ensure that you are making the greatest decisions for yourself, don’t be hesitant to invest in a financial planner (but be sure to consult one and/or conduct your own research).
The Risk-Taker
In terms of your finances and, most likely, the rest of your life, you don’t hesitate to choose the less-traveled path. Your domain is high-risk, high-reward scenarios. There’s a chance you can profit financially significantly. However, enormous risk accompanies immense opportunity. Making sure your movements are deliberate rather than just a money-based game of Russian roulette is the challenge. With so many new “get rich quick” schemes appearing on the scene, be careful not to fall for them and make sure your money is safeguarded in case something goes wrong. Verify the terms and conditions before making any investments. If they are overseen by the Securities and Exchange Commission (SEC), that’s usually a positive indication. Additionally, investors should seek out FDIC coverage.
What are their strengths: Their ability to generate substantial financial gains is what makes them strong. The risk-taker sees potential for significant profits where others see risk and feels at ease living life on the edge. They thrive in volatile circumstances. Their willingness to take risks with less conventional assets, such buying art and antiques, peer-to-peer lending, and Real Estate Investment Trusts (REITs), can result in remarkable financial returns. A strange painting today might bring in a lot of money tomorrow (well, maybe in 10 or 20 years, but you get the idea).
Their challenge: The main challenge for Risk Takers is ensuring that their risk-taking is calculated and not reckless. The Risk Taker must be vigilant against “get rich quick” schemes such as pyramid and Ponzi schemes. The vibe is, if it’s too good to be true, it probably is.
Financial advice they need for 2024: Balance risky financial decisions with well-thought-out preparation. This entails avoiding placing all of your eggs in one basket, conducting in-depth study, consulting a specialist, and maintaining a well-funded emergency fund. Investment diversification can reduce risk while preserving the opportunity to pursue and enjoy high-reward opportunities. You may invest your money in a variety of assets, including stocks, bonds, companies, and possibly even real estate, much like you would spread out your shopping spree across multiple locations rather than just one.
Their financial plans for 2024: A blend of investments with high and moderate risk should be part of the Risk Taker’s financial strategy for 2024. This could entail looking into things like cutting-edge tech startups. The secret is to control risk without making them lose their spirit of financial adventure.
The Planner
The planner, or the strategist of the financial spectrum, comes last. If you identify with this personality type, forecasts, budgets, and goals are everything to you. Your strength is in your careful financial planning and readiness for various life events, like marriage, house ownership, childrearing, returning to school, and job loss. But keep in mind that things happen unexpectedly in life, and that sometimes being flexible is just as vital as having a well-thought-out strategy.
What are their strengths: Planners, you are strong because you are well-prepared financially. You are excellent at making thorough financial plans and budgets that meet your present need as well as your long-term goals. Every subscription, grocery store purchase, weekend trip, and household expense is kept in your spreadsheet. This comprehensive strategy guarantees that you are prepared for a range of life events and offers a clear road map for achieving your financial objectives.
Their challenge: The planner faces a dilemma since life is unpredictable. While being well-organized is a good thing, being overly meticulous with your financial planning could cost you chances or make it more difficult to deal with unanticipated events. A well-thought-out approach may not always be as crucial as flexibility, therefore planners may need to incorporate flexibility into their 2024 financial plans. It’s crucial to create goals and adhere to a strict budget, but it can also be beneficial to adjust plans when circumstances change. This can mean adjusting financial goals, changing investing strategies, or moving money to better-performing areas.
Their financial plans for 2024: The Planner’s 2024 financial plan is probably going to be a well-rounded approach to investing and saving, with an eye toward reaching particular life objectives. This can entail putting money aside for significant occasions, utilizing plans like a 401(k) or Roth IRA, and modifying investment plans to take advantage of shifting objectives or market circumstances (like mortgage rates). Watch the personal finance headlines for alerts about impending changes, and then do your homework to be sure you’re getting the greatest product for your needs.
Knowing your financial personality is not only a fun exercise to complete; it’s an essential first step to financial empowerment.
Ultimately, knowing your money personality is about knowing yourself, not simply about handling your money. Accept who you are financially and allow it to lead you to a time where wealth isn’t simply quantified in dollars but also in the depth of your well-being and financial knowledge.