Many of us have been there at some point: Too many competing expenses and there’s simply no penny to spare for savings.
But the situation doesn’t change when we get a salary increase or a better paying job. Why is it so difficult for some people to save? André Wentzel, Solutions Manager for Savings at Sanlam says it is because our relationship with money plays a big role in shaping our attitude towards spending and saving than does the amount of money we earn.
“It’s very hard to keep emotions out of decisions involving money. The money we earn is evidence of hard work and often sacrifices. Behind every bank balance, there is a personal history. Our spending reflects our tastes and what we consider important.
Wentzel says there are different types of money personalities which are determined by our experience and relationship with money from a young age, and some are healthier than others.
Is your money personality hindering your savings potential?
The fearful penny-pinchers
These are people who are afraid of spending money because they are anxious of the consequences of reckless spending. The fear may be related to past experiences of the effects of lack of money. A typical example would be individuals who have seen their parents or someone close to them lose everything.
The money spenders
These are people who have a blasé attitude towards money, perhaps because they have never experienced what lack of money can do. It may be individuals who were born into money or adults whose parents sheltered them from money problems
People who come into money
This personality is particularly prevalent in South Africa with its large emerging middle class. Wentzel says these individuals usually find themselves splurging from their first pay cheque because of a long standing longing for certain lifestyle or things that they could not afford growing up. Another example of how this may manifest is parents spending lavishly on their children.
Unlocking your hidden savings potential
Understanding your personal history with money and accepting your role in your current financial situation can trigger the change of mindset required to get you to a better space, financially.
“You have to identify what your personality is first. It will help you understand why you spend money the way you do and how you can change certain behaviours. Your childhood longing for a better home might have resulted in your buying a much bigger and luxurious house than you need. Or your exclusion from your household’s financial decisions when growing up deprived you of basic budgeting skills. But when you get to the root of the problem, you are likely to see where the cash leaks are and what is causing them.”
Making and keeping your savings commitments
Wentzel says changing one’s attitude towards money is a journey. The first step, he says, is to make a commitment to change the current situation; set financial goals and find mechanisms that will help you stick to those goals.
“Some people are likely to stick to their saving goals if they have contractual savings products in place. Others get encouragement when they verbalise their commitments to other people while some may need some coaching or a mentor who can walk this journey with them. The kind of mechanism that will work for you will depend on your money personality.” says Wentzel
Wetzel identifies various tools that can help you keep your savings commitments:
Budgeting
It will allow you to keep track of where you may be slipping. Comparing your budgeted spend against your actual spending will also help you identify small cash leaks that might be adding up to a substantial amount at the end of the month. Furthermore, budgeting can remove emotions out of making financial decisions.
Sounding Board
Get some advice from a spouse, a family member or a friend. Having a sounding board that you trust lets you test your thinking and plans and can help you avoid your blind spots. Get into the habit bouncing your thinking off someone before making a decision that has big financial consequence.
Professional advice
It has the added advantage of objectivity. A financial adviser may also point out important needs or risks that you may not be aware of. Importantly an adviser should work with you to set a plan and not convince you to purchase products that you do not understand how they fit into your financial plan.
A commitment device
This may be a financial product, other commitment devices like digital goal commitments or social savings and saving societies.
Wentzel says saving is one of the easiest ways to try to take control over your money. He concludes that by digging deeper into the roots of your relationship with money, you can set the rules on what is important to you instead of letting money and what it can do for you dictate your future.
