This is Your Brain on Money
Welcome to our new series about your brain on money. Many of us don’t think about how our relationship with money affects the way we think and behave. In our new series on this topic we are going to learn about why we handle money the way we do. Part two is Are You a Money Spender or Money Avoider?
Are You a Money Spender or Money Avoider? How to save money based on your personality
Are you in a good relationship when it comes to money? The first step in understanding how to save money or get out of debt is knowing what Olivia Mellan, author of Money Harmony, calls our money personality. Mellan describes six main personality types: Spenders, Hoarders, Avoiders, Money Monks, Worriers and Amassers (take the quiz to find out yours), but it’s the Avoiders and the Spenders who are most likely to have a rocky relationship with money.
Avoiders: Don’t Talk to Me About Money!
If you are an Avoider, you put off looking at your finances until you absolutely have to, you probably aren’t budgeting and you likely avoid doing your taxes until the last minute. Your avoidance may stem from believing money is dirty or feeling inadequate because financial matters seem too complicated. Here’s what Avoiders can do to save money:
- Automate your savings – Set up an automatic deposit that takes a piece of your paycheque and puts it away in a savings account. You won’t think about money but will be building your savings.
- “Hide” your savings – If you set up a savings account at a different bank or institution from your chequing account, it will be out of sight, out of mind. You won’t see it every time you log into online banking, and your savings will continue to grow.
Spenders: Money is Only Good for One Thing!
Spenders enjoy using money for immediate pleasure, but this means they can have trouble with long-term savings goals. Spenders require more fool-proof methods of savings, such as one or more of these:
- Pay it back (to yourself) – Since you like to spend money, make it work for you by getting a cash-back rewards credit card and every time you get cash back, put it into your savings.
- Lock away your savings – If you put savings into a vehicle that is inaccessible for some time, like a GIC (Guaranteed Investment Certificate), you will be penalized if you access it before it comes due (terms can be as short as 6 months or as long as 10 years). This should prevent any hasty decisions to spend.
- Game your savings – Every time you get a $5 bill, (or a loonie or toonie), put it away in a jar or an envelope and deposit it at the bank on a regular basis.
Good tips for all personality types on how to save money
- Name it – Studies have shown that naming a savings account after your goal is a big motivator, and actually increases the amount saved. So, call it what it is: Trip to Disney or Chevy Cruze.
- Visualize it – Another way to save is to be constantly reminded of your goal. Use an image of your savings goal and make it the wallpaper on your phone, post it on your fridge or stick it on the jar or envelope where you are stashing your savings.
- Simplify it – Too many savings goals reduce the chance you will meet them, according to research from the Rotman School of Management at the University of Toronto. Pick one goal that you can accomplish in a short time and, once you’ve nailed it, move onto the next.
Our relationship with money can be complicated, but taking steps that are best suited to your personality type can make that relationship a happy one.