Success Requires Knowing Yourself

How would Freud characterize your financial personality?  We think handling money in our lives is as compact as a calculator.  It’s a brewed cauldron of emotional reactions, drives, personal history, and sometimes, demons.

Assume a stranger visits three homes where each resident legally receives a ‘no questions asked’ check for a $1,000. There will be at least three different responses to this sudden windfall. Do you recognize one of them?

The first person goes shopping. Not only does the shopper spend the $1,000 on items he didn’t even know he needed until the stranger appeared, he uses credit to spend more than $1,000, expanding the wonderful bonanza. The resulting feeling of immediate gratification is invigorating. But even as bags are dumped on the couch at the home, the euphoria begins to fade. The $1,000 becomes a foggy memory. Its legacy is stuffed into a closet somewhere.

The second lucky recipient deposits the check in a money market account…and waits. She waits for inspiration. For the correct place to invest for maximum effect, contemplating for weeks, months, even years. What is the right investment to ‘make a lot of money’? She has no specific goal for this money or timeframe for needing to spend it. She just wants it to grow a lot. It gives her a sense of comfort to see the dollars stockpile, but she remains generally anxious. The choice of investment must be perfect and perfect never presents itself. And so, the money sits quietly, not doing much at all.

The third beneficiary treats the bonus as an extra step toward achieving already defined personal goals. He adds some money to his daughter’s 529 plan for college. Another chunk goes into his Roth IRA invested in a diversified growth mutual fund. And part of the money is used for some unexpected fun. He takes his family to an amusement park for a day together with sodas and hot dogs all around. He uses the money for long term security, parental responsibilities, and a dash of current ‘carpe diem’.

Obviously, each of these three people has a different financial personality. The first person is driven by immediate gratification. He needs an emotional boost that spending money seems to give him for at least a little while. But the good feeling quickly fades, and he’s left with nothing but nagging debts and lots of stuff.  For him, spending money fills up an emptiness for a short time. Like an alcoholic or binge eater, it’s a quick fix leaving one in worse shape than before. It doesn’t address why he needs the fix to begin with.

The second person marries a large need for perceived security with analysis paralysis. Piles of money reduce her anxiety, but again, like the first person, only for a while. It’s never enough. The desire to make more never relaxes. Pushing growth of her pile, she demands the best vehicle, but never quite finds it.  Research, research, ask this person and that person. A decision never gets made. She’s never reassured she will have enough money. But she doesn’t even know what enough money is. Why does she not find security? What is the real source of her apprehension?

The third recipient has money in its proper place. It’s a tool. With a well-designed plan, it is used to achieve the plan’s goals. The sense of well-being comes from defining personal goals, setting timelines, and systematically taking steps to get where you want to go. And, getting there on-time with a dollar in your pocket. It’s a discipline, not a reaction.

Success is predicated on knowing your financial personality and working within its strengths and weaknesses.

Guest blog written by Grace Worley, Retired Founder of Worley Erhart-Graves Financial Advisors