The Psychology of Money - Sarah Milton

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Posted in Debt Free In 30
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

Debt Free in 30 Sarah Milton

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Why is the Psychology of Money Important?

Today’s guest is Sarah Milton, a Pension Account Manager with Clearpoint Benefit Solutions where she is committed to delivering quality financial education sessions to help empower people to take control of their financial future. She is also a regular contributor to the Retire Happy website MoneyProblems.ca.  You can read her bio here: http://retirehappy.ca/author/britchick/

She is also the co-author of Take Control of Your Money, a just released book on personal finance.

We started the discussion by talking about the psychology of money.  Sarah says that

Everything we have ever heard, seen or experienced in relationship to money is what influences our ability to earn, hold and grow it.

Our previous experience with money impacts our attitudes towards it.  If you grew up believing that it’s difficult and stressful to understand money, and that wealthy people are arrogant idiots, it’s not surprising that you don’t want to put a lot of effort into something that is difficult and complicated.  As Sarah says, “you’re not going to work your butt off to become an arrogant idiot”.  We create our own barriers, and self-sabotage our efforts to be better with our money.

The first step to changing our attitudes towards money is awareness.  If you are aware that you have certain harmful beliefs, you can take steps to change them. 

The next step is understanding.  If you can understand how you got into debt, you can take steps to change your approach to borrowing and money.  Then you set a goal and come up with a plan.

Sarah’s personal finance philosophy was influenced by two books:

The Wealthy Barber: The Common Sense Guide to Successful Financial Planning, by David Chilton

Secrets Of The Millionaire Mind by T. Harv Eker

Secrets of the Millionaire Mind focuses on the psychology of money, and is based on two concepts:

  1. Everyone has a money personality, and
  2. Everyone has a money thermostat

The way you handle your money is influenced by your money personality, and your ability to manage and grow your money is influenced by your money thermostat.

Money Personalities

There are four different money personalities:

  1. Spender
  2. Saver
  3. Avoider
  4. Money Monk (people who feel guilty about having money, and want to give it away)

Once you are aware of which money personality you have, you then must understand how your money personality impacts you, and you can then make changes to improve your financial life.

The key is to have a plan to address your issues, and that reduces the stress caused by financial problems.

Money Thermostat

We all have a money thermostat, which is a level of money that we are comfortable having.  If you are comfortable with $2,000 in your bank account, you will reduce your spending if your balance dips below $2,000, and if you have more than $2,000 in your account you may spend more to get back down to that “comfortable” level. 

The key planning point is to adjust your thermostat to an appropriate level.  You can even trick yourself to adjust your thermostat.  Instead of leaving money in your main bank account, put it in a savings account, or TFSA, or through a work place savings account, so you don’t see the cash building up, and you aren’t tempted to spend it.

The key is to understand how your habits may be sabotaging your best efforts, and take action to fix those issues.

Resources Mentioned on the Show

Click here for a full transcript to Show #15 - The Psychology of Money

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About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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