Understanding our beliefs about money is important because these in turn direct our behavior with money, which is perhaps the most significant factor in determining whether or not we become financially successful. We need to be aware that decisions about money often are not rational choices, but rather emotional responses born of early experience. To be financially successful, we have to make fewer irrational and impulsive decisions derived from emotional responses, and more rational and deliberate choices.
Both rational and irrational decisions can be subdivided into long-term and short-term ones. Possible financial choices can, therefore, be represented by the following Money Action Graph:
You have likely done this in your mind if you’ve ever bought a lottery ticket. Imagine a sum about five or six times your annual income (or what you think your annual income should be) and assume that I just handed you a tax-free check for that amount. Take no more than three minutes—first thoughts are important—to write down, in order of priority, six things you would do with the money. Try to set aside any ideas about what you should do. What do you want to do?
Your answers likely ranged from the sensible to the frivolous, from fulfilling long-term objectives to indulgent whims. Consider the very first thing on your list. Does this tell you something important about what you believe money is for?
There are generally four ways in which we use money:
- Spending
- Purchasing
- Hoarding
- Investing
Relating these uses to the Money Action Graph above, our new graph would look like this:
Let’s consider each of these activities and the kinds of beliefs that underlie them.
Spending. This word is often used in the context of buying everyday, inexpensive items without much forethought. Since women are often responsible for fulfilling the daily needs of a household, most of us engage in this activity when buying food or other necessities. However, we also spend as a form of recreation or entertainment. Have an afternoon free? Let’s go shopping! And off we go buying products and brands we did not even know we wanted until we were told we did by a multibillion-dollar marketing industry.
Purchasing. The activity of purchasing may seem similar to spending, but the formality of the word alerts us to a difference. We usually talk about purchasing when buying big or important things: homes, cars, or life insurance policies. I have never talked about purchasing a bag of Doritos. There is a deliberateness—an underlying rational process—that motivates purchasing.
Hoarding. Hoarding involves keeping something of perceived value for a very long time. It stands in contrast to spending in the sense that it involves holding onto something as opposed to letting it go. When we think of famous hoarders, George Eliot’s Silas Marner comes to mind. He was a greedy man fascinated with gold, a tangible form of wealth that seems even more concrete, solid, and safe than money.
Investing. Investing is a long-term use for money and requires careful, rational consideration. No doubt some investments are made impulsively, but arguably the investor in that case is more of a purchaser or even a spender, buying an attractive idea without careful review of what she is getting.
Using some real-life examples of what women do with their money, the more detailed Money Actions Graph might look like this:
This “Money Beliefs” exercise was excerpted from Eleanor Blayney’s book,
Women’s Worth – Finding Your Financial Confidence.
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