Written by Kevin Payne
Managing your money and spending effectively seems relatively black and white, but your experiences and emotions can have an enormous effect on your relationship with money. We all have different stories and starting lines, which can lead to different opinions and associations with money.
Building an effective mental framework can help you understand your relationship with money and spending, and become more aware of real or imagined beliefs about spending. It can also empower you to overcome past traumas and develop the financial habits necessary to manage your money more effectively going forward.
You may not realize it, but your life up until this point has informed your spending habits. For some, there's never been a worry about how much money they spend. For others, thinking about money is stressful and can trigger past hurts and self-defeating thoughts and behaviors.
Factors that affect consumer behavior typically fall into five categories:
Almost anything can affect how we choose to spend our money. For many, though, certain experiences have played a leading role in the development of spending habits, good and bad.
Here are some of the factors that could be contributing to your views on spending.
According to a recent study by psychological research scientist Dr. Galen Buckwalter, nearly one in four Americans suffers from PTSD-like symptoms caused by financially-induced stress. That number jumps to one in three among millennials.
Carrying financial trauma from past experiences can lead to the development of harmful behaviors like denial, avoidance, isolation and other self-destructive behaviors.
According to a recent LendingClub report, 63% of Americans are living paycheck to paycheck. High-income earners aren't immune to financial struggles, with 47% of individuals earning six figures living paycheck to paycheck too. Whether financial strain is a result of the current economic environment or you've experienced a lifetime of financial insecurity, financial struggles can affect your spending habits.
We're used to seeing stories on the news about people's lives being turned upside down from a singular traumatic event, such as a natural disaster or an assault. The reality is that there are singular financial and life events that can impose just as much trauma on individuals, affecting how they feel about money.
Consider someone who is forced to live in poverty, either by external or internal conditions. Or how about the person who has to deplete their life savings to cover emergency expenses or medical bills? You could hear news about a great investment opportunity only to lose your retirement savings in a deal gone bad. After decades of marriage and shared finances, getting a divorce could change your entire financial profile.
Our spending habits can also be formed through generational or systemic views. Some generations have experienced incredible financial trauma that caused the widespread development of a scarcity mindset. It's possible for these types of worldviews to get passed down to other generations, too, extending the effects and behaviors surrounding money.
Your money mindset can manifest itself in several ways, including:
If any of these sound familiar, you may need to not only work on changing your financial habits but also get to the root cause of your thinking about money.
Dealing with past trauma and developing a healthy relationship with money may look different for everyone. There's no right way to heal from past trauma and overcome limiting beliefs about money. With that said, here are some steps you can take to improve your relationship with money and spending.
As you recognize troubling financial beliefs, try to root out the underlying cause of those beliefs and feelings. Seek out help from others if you're struggling to identify the cause.
Have conversations about money the way you would have conversations about other subjects. Money doesn't have to be a taboo topic. Avoiding money conversations can often reinforce limiting beliefs or lead to shaming yourself about financial mistakes.
Focusing on the "why" behind spending habits is crucial, but so is developing healthy financial habits and learning how to manage your money better. Skills like budgeting, tracking your spending, saving, building an emergency fund, and investing can help improve your financial situation in the short and long term and help you escape some of your limiting financial beliefs.
As you reach certain financial milestones, it's important to celebrate. That doesn't necessarily have to mean spending money, but take time to recognize your achievements and continue to set financial goals.
Overcoming financial trauma and money mindset challenges is no small feat and may take the help of a professional to work through. Seek out help from a professional therapist to explore the root cause of your financial trauma so you can start to heal and grow.