TL;DR
- Most people have at least one money hang-up.
- Common money hang-ups include: over-spending, a scarcity mindset, viewing money as taboo, having no long-term financial goals, and intimidation towards investing.
- Take the quiz below to see if you have one of these money hang-ups!
- Scroll to the bottom of the post to find recommendations for your money hang-up.
Pretty much everyone has at least one money psychology hang-up. For some of us it’s spending way too much money on random Amazon purchases. For others, it’s the sense that we’ll never have enough money. And still others have grown up feeling that money is a taboo topic they’re better off not talking or even thinking about.
These are just a few examples of money hang-ups. Regardless of what your hang-up is, it can prevent you from realizing your full financial potential. That sounds cheesy, but it’s true.
My Experience with Money Psychology Hang-Ups
I’ll use myself as an example. By all accounts, I seem like I’m pretty with it financially. I budget assiduously. I save 10% of my gross income for retirement (my employer contributes another 5% to reach the recommended 15% savings for retirement). Plus, I save over a third of my income each month to buy a house one day.
However, I have had two big money hang-ups throughout my life. The first: until recently, I was terrified of the stock market. This meant I started investing for retirement later than I should have. In the long-run, I’ll benefit less from compounding than if I’d started in my early 20s.
Perhaps even more importantly, I have a scarcity mindset when it comes to money. I have always saved way more than the recommended percentage of income (20%). As a result, my money mindset has often prevented me from fully enjoying life. It’s also prevented me from realizing that the solution to my money problems isn’t cutting more from my budget, it’s making more money. House prices in and around Seattle are crazy and I’m not going to budget my way to a 3-bedroom house near the city (literally all I’m asking for). I need to hustle for that raise, that side money, or, if all else fails, a higher-paying job.
By not pursuing a higher income sooner, I’ve likely lost out on some of the wages I could have been earning. Luckily, after lots of research on personal finance, I’ve identified my money hang-ups and am working to correct them. You can too!
Discover Your Money Psychology Hang-Up
The quiz below will help you identify your money hang-ups. You can find recommendations for your money hang-up in the next section.
How to Remedy Your Money Psychology Hang-Up
If your hang-up is over-spending
In our capitalistic society where we are hounded with advertisements for the hot new item, it’s unsurprising that many of us have problems with over-spending. However, over-spending can eat away at your budget, preventing you from saving enough to meet your goals or fully understanding where your money is going.
You may benefit from creating a budget and using the envelope system. You can find my guide for creating a budget here. In creating a budget, you’ll want to identify how much you want to spend each month on discretionary/non-necessary spending. You then assign that amount to a “discretionary spending” envelope.
Many banks offer an envelope system that automatically sends percentages of your paycheck into envelopes for things like necessities, savings, and discretionary spending. You can also manually allocate a certain amount of money to your discretionary spending budget. Once your discretionary spending money is used up, it’s used up and you can’t make any more non-necessary purchases until your next paycheck.
It may also help to identify your money values. In other words, what is most important to you to spend money on and what do you enjoy most? Try to focus your non-necessary spending on things that contribute to those values and cut the rest.
Finally, you can start a money journal. Write down a purchase you want to make and why you want to make that purchase. One week later, revisit your money journal and decide if you still feel strongly about that purchase. If you do, go ahead and buy that item! If not, awesome! You just saved more money!
If your hang-up is a scarcity mindset
A scarcity mindset can seem like a good thing. If you have this mindset, there’s a decent chance you are saving a lot of money and being very frugal. These practices tend to be praised in our society, in part, because many people struggle to save money.
However, a scarcity mindset can also be super harmful. It prevents you from enjoying life, cultivates anxiety around money, and harms relationships if you tend to prioritize money over relationship building. This mindset can also prevent you from seeing opportunities to make money, because you’re so focused on saving money and cutting costs.
To address this, you could establish a monthly budget for “fun” spending and/or a fun goal to put money towards each month (like a vacation you’ve always wanted to go on). Some banks allow you to set up an envelope system where money is automatically pulled out of your paycheck and put into envelopes for different categories of spending. You could also do this manually. The key is to actually spend that fun money.
You can also write down your dreams, values, and passions and reflect on how you can use your fun spending to support those values. It can be tempting to save your fun money or use it on things that are truly necessities. So you could seek out a partner, friend, or therapist to consistently remind you to enjoy that money.
Finally, evaluate whether you are missing out on opportunities to make money because of your scarcity mindset. Perhaps you don’t feel like you deserve to make more money, that you’re unlikely to get a raise, that you don’t want to invest money in your own training or development. If any of these resonate, consider what steps you can take to invest in your future self.
If your hang-up is investing intimidation
This is a common hang-up, especially among millennials who came of age during the 2008 stock market crash. Many of us grew up hearing things like “investing is gambling” or the “stock market is like the Wild West.” Neither of those statements are true. Over the course of the New York Stock Exchange’s 200+ year history, the stock market has followed very consistent patterns. It usually drops by 10% every 1.6 years and 20% every 4 years. However, even with these drops, it has averaged a 7.31% annual return over the past 30 years, after being adjusted for inflation. Investing is the only way of reliably beating inflation over time.
To help with this hang-up, listen to fun podcasts or read interesting books on the stock market. I recommend the Stacking Benjamins podcast, the Afford Anything podcast, Ramit Sethi’s I Will Teach You To Be Rich book and podcast, and The Psychology of Money by Morgan Housel.
You could also consider automatically directing money each month to a retirement account to get in the practice of investing. You may already be investing through your employer if you have a 401K. However, it is empowering (and helpful if you’re not already saving 15% of your income towards retirement) to set up an IRA or Roth IRA and send even a small amount each month to that account. As you get more comfortable, you can increase your contributions.
The key is to only look at the returns to your account a couple of times a year. Again, it’s normal for the stock market to go down in the short-term. However, in the long-term, it has always gone up. Checking your accounts too frequently can therefore lead to unnecessary anxiety. See my guide to getting started with investing for more information.
If your hang-up is no long-term money goals
Having no long-term money goals can be harmful for a couple of reasons. First, without long-term goals, it’s hard to get motivated to save. And when you do save, it’s easy to dip into that money because you have no vision for what that money should be for. Finally, without long-term goals we can let life happen to us, rather than taking control of the things we want. You probably have things you dream of, even if you haven’t articulated them. Maybe it’s owning a house, going on a big trip across Australia, having kids, or owning a Chanel purse. However, you won’t reach those dreams if you don’t bring them into the light and start working towards them.
Luckily, this is a fun money hang-up to remedy. You get to think about and write down what you dream of! If you have a partner, you’ll probably want to have a conversation together about shared dreams. Once you have your dreams established, you can use my guide on saving for any goal to develop a savings plan to meet those goals.
If your hang-up is viewing money as taboo
We’ve probably all heard at some point that it is impolite to talk about money. It’s therefore no surprise that many of us feel that talking or even thinking about money is taboo. However, this perception can have dire consequences for our finances.
For one thing, it can make us hesitant to keep track of our finances. Common consequences of this hang-up include spiraling into debt before we realize there’s a problem, not saving enough for our goals, not pursuing higher-paying jobs because of a sense that doing so is dishonorable, and relying on a partner to control our finances. The latter has led to financial problems for people if a partner dies, leaves a relationship, or hides money problems. It can also build up resentment and lead to communication issues.
It’s therefore super important to get comfortable with money. To do so, seek out fun resources about money like podcasts or interesting books. I recommend the Stacking Benjamins podcast, the Afford Anything podcast, Ramit Sethi’s I Will Teach You To Be Rich book and podcast, and The Psychology of Money by Morgan Housel.
It is also helpful to get in the habit of checking your financial accounts regularly (every week or two) until you get a better handle of your financial picture. You may find that a budgeting book like the one by Clever Fox is especially useful. The budgeting book not only allows you to keep track of your finances, it includes prompts that help you think and talk about money.
If you have a partner, set up a time every week or two to check in and discuss money. My favorite podcaster, Joe Saul-Sehy, makes this fun by having conversations over wine or pancakes (depending on the time of day).
Conclusion
We all have money hang-ups. So don’t get down on yourself if any of this information feels difficult to swallow. We live in a society that tells us, “Make a lot of money and be productive! But don’t talk about money because that’s rude! And show off that you have a lot of money! Wait, actually don’t show it off because that’s gauche.” It’s enough to give anyone whiplash.
So give yourself grace as you work through your money hang-up. This stuff doesn’t come naturally to most of us. The goal is to feel like you understand your finances—what’s coming in and where it’s going and to feel like your money is working for you, rather than the other way around. Getting to that point is so empowering. I believe in you!
If you enjoyed this article, please consider liking, subscribing, or sharing with others, it’s always super helpful! And if you are interested in related content, check out my articles on creating a budget, money moves to make during a recession, and how to save for any goal, among many others in the Personal Finance section of the blog.