If you’re a human being, you likely carry unconscious beliefs about money – maybe you think you don’t deserve to spend it, or that you need more of it to be happy. Beliefs like this can steer you toward counterproductive money choices without you even realizing it.
We’ve all been there. But harmful money thoughts really don’t need to last forever. Here’s what you need to know about how your money psychology might be hurting you – and how to break free.
How to Spot Your Money Script
Financial psychologist Bradley Klontz coined the term “money scripts” to describe our core beliefs about money – the scripts we wrote for ourselves early on and can’t help but follow.
There are four types of money scripts: money avoidance, money worship, money status and money vigilance. That might sound complicated, but the basics are pretty simple.
Money Avoidance
If you follow this script, you believe that money is bad, or that you personally don’t deserve money. You might think, Good people shouldn’t care about money, or Rich people don’t deserve wealth. Maybe you believe money is the source of stress, so it’s better (even a virtue) to make do with less.
Money Worship
If you’re in this category, you believe that money will automatically bring you happiness or fulfillment. You can never be too rich and It’s not possible to be poor and happy are common beliefs here.
Money Status
If you’re all about money status, your self-worth gets tangled up with your net worth – which means you start to believe things like, My success is measured by my income, or The things I own reflect my worth.
Money Vigilance
A money vigilant person keeps a careful (some might say “stingy”) watch on her finances and believes things like, Research all purchases to get the best deal or Always save for a rainy day (though often, that rainy day never comes). This kind of thinking is usually quite helpful, but can lead to very risk-averse money behaviors that can set you back.
What Your Money Script Does to Your Finances
If you were reading one of the above descriptions and thought, Isn’t that what everyone thinks?, that’s probably a sign. Once you’re aware of your money script, you can better understand how it affects your most important money decisions.
Spending
Your spending decisions are often triggered by your financial psychology.
If you’re money avoidant, you’d prefer not to think about money, and often spend mindlessly. If you have this psychology, it might seem easier to buy without thought — and deal with overdrafts and maxed out credit cards later — than to learn how to budget and track your spending.
Money worshippers and status seekers are also vulnerable to overspending. Individuals with these scripts might know exactly how much they are spending (although not all do). But for these spenders, the pride of ownership is more important than keeping a positive bank balance or becoming debt-free.
The money vigilant are prone to underspending, which can cause emotional distress and even potentially cost money in the long-term. For instance, someone who thinks this way might keep an old pair of running shoes for years, saving her the annual $65 she’d spend on a new pair, but eventually cause an injury that costs thousands.
Saving
Very few Americans are saving enough – and in some cases, money scripts could be to blame. Lackluster savings are sometimes related to things like stagnant wages, but your commitment to saving is also tied to your financial psychology.
If you’re a money avoidant person, you’re uncomfortable with money because you think people with money are immoral or bad. You might even sabotage your savings to relieve feelings of guilt about having money.
When it comes to money worship and money status scripts, saving generally takes a backseat to spending (or even splurging). But if this is you, that doesn’t mean you’re always uncomfortable holding onto some money. After all, it can be another way to impress others.
The money vigilant are also likely to have robust savings, which is definitely a good thing. But sometimes, it’s important to dip your savings. Making money choices based on fear is rarely the way to go.
Investing
Your money psychology can also influence your investment choices, which can have long-ranging consequences.
For the money avoidant, investing can seem too risky or complicated – after all, if you don’t bother, then you don’t have to make any uncomfortable decisions. Someone with this pattern tends to jump on the bandwagon, buying so-called “hot” stocks and liquidating during downturns, without thinking much about the outcome.
Money worshippers and money status seekers go for risky investments, in part because they fear missing out on the “next big thing — and because they want a shortcut to wealth. That makes them vulnerable to investing bubbles and get-rich-quick schemes.
The money vigilant might also opt out of investing, as the fear of losing money in a market downturn can keep them from taking on the risks involved. When they do invest, they focus on investments that will protect their principal. This is a bet that seems safe, but erodes the buying power of their money because growth won’t outpace inflation.
Your Money Psychology Is Not Wrong
Although your money script might steer you to make some irrational choices, it’s important to remember that your money scripts are neither right nor wrong. They’re nothing more than the financial lens through which you see the world.
Once you understand your money psychology, you can give yourself a gut check the next time you make a big – or even small – financial decision. Is your first instinct really the best option? Or is it just what feels comfortable?