People often make six common mistakes when they deal with their money. They tend to be risk-seekers, hoarders, retail-therapists, cash-splashers, controllers, or avoiders. Each of these mistakes is avoidable – and they typically stem from personal issues that have little or nothing to do with money. Instead, we try to compensate for other personal needs.
Risk seekers just want to do something. Given a choice between waiting and doing, they almost always choose action. They’re overconfident, trading in and out of positions. They don’t usually measure performance, because they’re focused on the next opportunity. “Never look back” is their motto. Trading juices the endorphins in our brains and can get us hooked.
For hoarders, money represents security. They often stockpile cash rather than invest it. If they were raised at a time when money was tight, they may find security in a large bank account. Scrooge was a hoarder. While everyone should have an emergency fund, there’s no reason to let cash build up excessively. After all, bank deposits only get so much insurance.
Ebenezer Scrooge. Illustration: Fred Barnard. Source: Wikimedia
Shopping makes Retail-therapists happy. They don’t even have to buy things for themselves. Just pulling out a credit card can boost their self-esteem. At the extremes, these folks are like alcoholics – stashing bags of new purchases around the house, the way problem drinkers stash empty bottles. Both women and men can indulge themselves this way. These people often end up with debt problems.
Cash-splashers are conspicuous consumers, and it’s the having, not the getting, that’s the thrill. They are likely to wave their checkbooks at charity auctions, and spend money on visible, frivolous things. They’re unlikely to quietly go to the front of a restaurant and quietly cover the tab. Rather, they’ll make an announcement that the meal is on them. Often, these people are motivated by wanting to be admired. But there’s nothing admirable about showing off.
Controllers are obsessive about bank balances, credit card points, and comparison-shopping. They want to keep on top of money matters, but often this is just because they’ve lost control in other areas of their lives. And not matter how much we plan, life is unpredictable. Keeping on top of our finances is a good thing, but controllers make it too much of a good thing.
Finally, there are the avoiders: ostriches who bury their heads in the sand. Bills and bank statements lie unopened. Either they are easily distracted, or they don’t want to decide, because making no decision is always easier than the risk of making the wrong decision.
Public Domain. Source: Max Pixel.
The way to break out of these habits is to have a plan and stick to it. Start by keeping a money journal and make entries for purchases and investments. Work into it gradually, starting by reviewing your finances for a half hour every week or so. This may be like shock therapy to a controller, but the rest of the people on this list need to address – not avoid – their money issues. Ultimately, you want to have a budget – one that includes long-term investments, as well as categories for day-to-day spending.
Because the most meaningful things for us come from the experiences we share. And these don’t have to be expensive – like going to the park with our kids, or sharing a simple meal with friends. After all, the best things in life aren’t things.
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