Opinion: Money Psychology

Author: Shruti Agrawal, Director & Co-Founder, CAGRfunds

Shruti Agrawal, Director & Co-Founder, CAGRfunds

In
contradiction to the concept of a “rational consumer” as per Adam
Smith, nobody is entirely rational around money today. Tracking our expenses
seems like a tedious job and we obviously have better things to do. Our investment
choices are no different than betting on the losing horse. We spend exorbitant
amounts out of recklessness or too little out of guilt. Our relationship with
money is often that of shame.

Everything
we do with our money is a close representation of our behavior.

Money
psychology is how your beliefs, feelings, and expectations about money
influence your financial behaviour and success or disappointment. Your money
personality is a complex mix of a plethora of experiences including varied bits
and pieces from your childhood. It takes a lifetime to evolve.

But
not only the size of your paycheck holds importance but how you spend it does
too. Assessing why you make the decisions that you do is the first step towards
a frugal lifestyle.

We
have listed three main categories of money personalities. Which one do you
identify with the most? Let’s find out!

Anita-
The Tomorrow Girl.

Financial
planning is the one arena in Anita’s life that she finds hard to tackle and
daunting. She usually succumbs to putting it off. But the tricky thing is that
in the very short run, avoidance works to reduce anxiety for her. As soon as
she thinks about sitting down and taking a hard look at her financial
situation, just thinking about it makes her anxiety level rise. That anxiety
leads to avoidance. She postpones the task and distracts herself. At that
moment, her anxiety level immediately drops, giving her positive reinforcement
for the avoidance and she becomes inclined to do it more often and she repeats
this cycle over and over.

But on
some inevitable day, she will have to face her financial dilemma. The anxiety
she will face then will be far more than compared to what she would have to
face if she had been regular with charting out a financial plan for herself.

If you
are anything like Anita, don’t worry as you are not alone in feeling
overwhelmed and helpless around your finances.

This
is what you should do:

1)
When it comes to making financial decisions, it seems many need to feel the
sense of urgency only a deadline can provide in order to take action and get
started.

2)
After taking the first step procrastinators realized it‘s not as hard as it
seemed. The first step can be something as easy as setting a simple financial goal. We believe making and meeting financial goals shouldn’t require
exhaustive prep time.

3)
Begin by writing down small, achievable financial goals. Achieving small wins
can be a huge motivator toward bigger, longer-term goals, like saving and
investing for retirement.

Rahul-
the EMI guy

The
latest iPhone? Check! EMIs made it possible. A brand-new car? Check! EMIs
made it possible. But even the High definition speakers are on an
EMI!?

This
reminds me of the famous movie line, “Rahul. EMI to Liya Hi Hoga!”

Rahul
puts his money into things that make a statement, often leaving him
savings-less. He doesn’t fear debt and isn’t wary of taking big risks when
investing. He finds solace in exuberant
spending after a day’s hard work.

But as
Warren Buffet puts it, “If you buy things you do not need, soon you will
have to sell things you need.”

If you
Can relate to Rahul, here are some tips for you.

1)
Limit your spending what you’ll actually use by asking yourself how much value
would each purchase hold after a year. If the answer is not much, skip buying
it.

2)
Avoid buying things on EMIs. Moreover, buy only things you can afford. Making a
statement is not as necessary as a secure future.

3)
Look for investments with a slow and steady return instead of counting on quick
wins.

Rhunjhun-
Miss Save-it-all

Rhunjhun
loves saving money and enjoys finding a great deal. Bargains rock her world.
Socking away enough nuts to last through winter comes as naturally to her as
any other hobby. She’s always taking steps to prepare for those unexpected
costs. She turns off the lights when leaving the room, closes the refrigerator
door quickly to keep in the cold, shops only when necessary and rarely makes
purchases with credit cards.

But
she is not a saver, she is a hoarder. Yes, you can save too much money. There’s
a difference.

Rhunjhun
considers holding cash the best long-term investment option there is. Even a
slight dip in the market scares her and abhors risk. She would prefer to keep
enough in hand to cover all possible future emergencies which sum up to all of
her savings.

Do you
find Rhunjhun relatable? Then let us help you take your mind off the ‘rainy
day’ for a little while.

Here’s what you should do:

1) Ben
Franklin once recommended “moderation in all things.” We find this
advice particularly important for Rhunjhun’s kind. Don’t just walk past all the
fun parts of life to save a few pennies.

2)
Everyone needs an emergency fund, but cash is not a suitable long-term
investment. We are aware of your abhorrence of risk but still, the best option
is to invest in suitable long-term options.

If you
still feel uncomfortable about loosening the purse strings,

1. Talk
to us. We will prove to be your best friends by the end of this
journey. Find us here

2. Take
help from a friend or a loved one.

Why
stress about the future if your present is passing you by.

If you
can relate to any of the people above, there is nothing to worry about. It’s
only normal to have similar money habits. But instead of sticking to one
attitude, you should try to be flexible with how you manage your money
depending on the situations. Such a practice will give you the best results.

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