06 February 2011
Money Madness: Are There Flaws in Your Financial Personality?

We all have our own “money personality” — the unique thoughts, emotions and habits that we bring to our relationship with money.

Back when the economy was strong, the “bad” parts of our money personality might not have hurt us much. But these days, bad habits can be costly. Take a look at these common money personalities — and the madness they can cause:

The Home-run Hero. You swing for the fences. In looking for big, fast payoffs on your investments, you’re willing to take big risks. Psychologists would be more likely to call you an adrenaline junkie than an “aggressive investor.”

Solution: First and foremost, understand that true financial home runs are few and far between. So, take an honest and critical appraisal of all the times that you’ve swung for a grand slam and failed. Next, take the impulsivity and gamble out of your plans.

Set up an automatic investment plan that puts money in a diversified portfolio of investments — ones that are appropriate for your goals and time horizons.

The Lifestyle Spender. You run up credit card bills you can’t afford to pay for things you really don’t need. When money gets really tight, you borrow more, believing that better times are right around the corner. That money then goes to pay interest on your existing debt so you can keep up your lifestyle.

Solution: Take a one-month sabbatical from credit cards (and see if handing over your hard-earned cash for purchases doesn’t help you focus on buying only things you truly need). When you begin using your cards again, treat them like checks. When you use plastic, enter the amount in your checkbook and subtract it from your balance. Then send the total monthly amount to your credit card company.

The Tightlip. You’d rather not talk about your finances, even with your spouse. Because you can’t tell your spouse that money is tight, he or she overspends. And because you’re so secretive with your activities, your household might unwittingly take on more risk than your finances can tolerate.

Solution: If money talk is making you uncomfortable or defensive, get some help from a financial counselor or planner. You and your spouse don’t have to agree on everything — just that you’re going to meet with a professional who can help. Another trick is to focus on the future. It’s often easier to agree on saving for a child’s college education or opening a Roth IRA for both of you than agreeing on whether tickets to the Final Four are really a necessity.

Don’t Despair!

First and foremost, don’t be embarrassed if you uncover some “madness” in your money personality. Economists and behavioral scientists are quick to note that there’s very little truly “rational” about human behavior — especially when it involves money.

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