Have you ever wondered why certain financial tips make other people rich but don't work for you? Maybe they're not for you. At least, that's what personality theories say. In this article, we'll look at the most important statements about different financial personality types and how they can help you manage your money better.
What is a financial personality type?
Pandemic, war, galloping inflation, looming recession. In recent years, there has been no shortage of sources of instability and uncertainty. There is also an increasing likelihood of making irrational financial decisions based on emotions: fear, euphoria, or anxiety. In the world of asset management, such a situation is not uncommon.
The stress of having to make ends meet, hold down a job, or deal with debt can make us feel anxious, depressed, or even hopeless. This is where the vicious cycle between our psychological profile and money begins. When we are emotionally upset, it becomes harder for us to manage our finances effectively, risking further harm to ourselves, both financially and psychologically. The only way to break this vicious cycle is to become more aware of our relationship with finances.
Ultimately, money should work for investors, not the other way around. It is clear that investment decisions are not always correct. However, it is surprising that different investors often make the same mistakes and even repeat them instead of learning. Behavioral finance is an approach that studies such mistakes and offers alternatives to systematically erroneous behavior. “7 Types of Financial Personalities” explains why we act the way we do, and also gives advice on how to avoid common mistakes in the future.
One of the seven examples is the result of behavioral research: losses cause more pain than gains bring pleasure. Impact on the stock market: Gains are often realized too early - fear of not being able to convert them into cash. On the other hand, losses are often not realized due to a refusal to admit that we have really lost something. Added to this is the often unfounded hope that the stock price will recover.
“If the horse is dead, you have to get off it.” How do successful investors react in such a situation? They soberly assess the situation, realize the losses and invest in more promising investments to compensate for the losses. The study describes what exactly this means, as well as six other typical psychological profiles of personalities with atypical reactions.
Main financial personality types
In psychology, everyone is probably familiar with some theories about different personality types - introversion and extroversion are probably the most famous. But, the psychology of finance says that each personality type has its own strengths and weaknesses when it comes to relationships with money. However, in principle, anyone can achieve financial prosperity, big or small - as they are lucky. And for this it is not even necessary to make titanic efforts. Instead, it is important to explore your own personality, and then act accordingly. To achieve prosperity, you do not need to pretend to be someone else. You can get what is already inside you.
How to determine your financial type? Like any personality model, it generalizes and simplifies the infinitely complex human experience and behavior in an idealized form. You do not necessarily belong to one type. Some people may identify with most of them. According to this, a person's basic character can be traced back to a fixation in childhood. Everyone has experienced difficulties in one way or another in childhood and developed an unconscious pattern of behavior in response. Even as we learn and develop throughout life, this fixation remains.
But enough of the preamble, let's get to the point. The seven types of people in finance have (in short) the following personality traits:
1. Excited
People in this group are constantly worried about their money, regardless of how much money they have in their bank account. Such people are constantly afraid of a possible bad outcome, and they also have low self-confidence. In general, being foresightful and taking into account possible failures is not a bad quality. However, those who constantly think negatively become depressed and have a disturbed relationship with money. Those who suffer from this should find out where the fear of loss comes from and how to deal with it.
2. Gambler
Gamblers, on the other hand, like to take risks in order to make a profit. They can either reward themselves or suffer corresponding losses. Those who are prone to risk are also advised to think about their attitude towards finances, preferring to put something aside rather than recklessly investing money in uncertain assets.
3. Indifferent
People in this category rarely or never think about money, indifferent to its impact. They need a small budget to be happy. However, it should be remembered that if you do not calculate your expenses, there is no financial room for maneuver and as a result, many problems can accumulate. In this case, you should look at your finances to at least protect yourself and avoid any financial difficulties.
4. Focused on savings
Compulsive savers do exactly what their name suggests—they save. This is the only way they can feel secure, usually without any specific goal in mind. However, in the long run, they will never allow themselves to do anything with the money they have saved and will become increasingly dissatisfied. This category of people needs to find a good balance between setting savings goals and thinking about the future, and on the other hand, treating themselves to something.
5. Compulsive Spender
This type is the complete opposite of the compulsive saver. They constantly spend their money, often unnecessarily. People in this group are characterized by great openness, and also strive to make everyone around them feel comfortable. They usually want to achieve this with the help of money, which they like to spend without thinking about it. Stressful situations are compensated by shopping. Everything is fine as long as there is enough money. However, with compulsive spenders, this is often not the case. They accumulate mountains of debt. Here it helps to draw up a financial plan and think twice before making new purchases whether they are really necessary.
6. Bragging
Braggarts are part thrift and part spendthrift. They earn a lot of money and enjoy spending it. However, this attitude towards finances can lead to stressful situations, as the braggart works hard for something that does not last long. You need to think about your finances more often and maintain a healthy balance between saving and spending.
7. Compulsive migrant worker
This type is only happy when they earn a lot of money. They put maximum energy into their work to accumulate wealth. Financial success is often a reward for hard work and is seen as a sign of self-affirmation. However, relationships with family and friends are neglected and damaged. If this applies to you, remember that there is more to life than just money.
How to manage money depending on your financial type
Did you recognize the dominant aspects in yourself or in people you know in the description of the types? Perhaps several types suit you. Determining is a difficult task. As a rule, personality type is determined using an extensive questionnaire. There is also a test for financial type.
As you can see, the psychology of types, that is, a set of emotions related to fear, guilt, envy, shame, and excitement, deeply affects our relationship with money. The philosophy of finance depends on beliefs. We should think of money as something with which to have a complex relationship. Money (and your personal finances in general) is not a fixed entity, but rather a set of data, challenges, and opportunities that everyone interacts with and experiences. We make decisions that affect our financial situation and have consequences for feelings and future behavior. And this is constantly evolving throughout our lives.
In the part of the world where we live, no one is potentially deprived of the opportunity to become more or less wealthy. However, most people cannot do this because they do not know their financial type or how to use its strengths. This is mainly due to two main reasons:
- Internal conflict of values and beliefs;
- Lack of a solid financial foundation.
The first aspect is often overlooked, but it has a big impact on our behavior. We often have negative beliefs, as we saw above. Our beliefs are not just thoughts that we pay attention to from time to time, but are actually programs installed in our subconscious, like software. Beliefs often have their roots in childhood, through beliefs that our parents instilled in us. Perhaps they argued about money or criticized someone who had it.
The psychology of money affects our lives. It leads to conflicting behaviors about what we should do to have more money, or what it would mean if we had too much. Basically, we think that money can give us freedom, the ability to be generous, the ability to have free time. At the same time, we think that in order to accumulate a lot of money, we have to give up our free time. Maybe because we have to work a lot.
Another reason why people can’t control their money is because they think it’s too difficult to manage. So they spend it, distracting themselves from their own business. There have been cases when people have won large sums of money in gambling. In a short time, a person who became rich has completely squandered his assets. And to think, it was a “wealth” that he would not have earned even in his lifetime!
In the world of sports and entertainment, there are also countless examples of famous and highly paid artists and champions falling below the poverty line. The reasons for this are usually bad investments, greedy advisors, fake friends, addictions such as drugs and alcohol, and accumulating debt.
Money pushes people's emotions to extremes. It creates exaltation, inflates egos, breeds greed, but also fear, and can erode self-esteem.
There are people who crave money and are ready to do anything to accumulate it in large quantities, and there are those who demonize it. There are those who consider it, more or less unconsciously, something "dirty", far from their values and the meaning of life. And all this time we have been talking about financial personality types.
Because money creates this cocktail of emotions, it is very important to approach it as best you can, knowing your own. Unfortunately, almost no one has received a solid financial education. We are not taught how to manage our finances in school, and often not even in university.
It is certainly worth making some effort to apply your type, which is particularly associated with money, your money psychology. Not least because without awareness, it tends to override rational thinking and guide your actions.
The path to financial freedom is different for each type. Some may be similar in their outward behavior, but their inner motivations are different. It’s not about financial behavior, it’s about why we do things. This also explains why some success formulas work very well for some people and not at all for others. Instead, you can use your type to find your own, individual solution (in all areas of life) that matches your own personality traits.
Conclusion
The better you know yourself, the more purposeful you can be on your path to prosperity. If you understand your own motivations, pay attention to your typical obstacles to prosperity, and at the same time focus on your personal strengths, you will advance further than someone for whom the subconscious always remains unconscious.
Ultimately, the goal of such discernment is not simply to get rich, but to mature as a person. However, overcoming limiting and destructive attitudes takes time and the courage to take different paths than before.
