3 rules to build a healthier relationship with money

Sarah Newcomb, Ph.D.  |  03 April 2018  |  5 min read

Key points:
  • Recognise the financial story that drives how you spend money
  • Choose healthy strategies to meet your underlying needs
  • Cultivate your value

In my years of studying financial psychology, I have worked with many people. From farmers and small-business owners to students, parents and teachers. If my experiences have taught me anything it is this: when it comes to money, we all have issues. But we all can get better. 

Rule 1. Recognise your story

Every financial decision starts with a story. A person’s relationship with money is almost never about the numbers. It is about the stories we tell ourselves because of those numbers. This is why one person can feel satisfied with a modest lifestyle, while others feel constrained on several million dollars a year.

Some people, having watched their parents lose sleep during the Global Financial Crisis, will reject any suggestion of investing in shares. Others believe deeply that life is too short to worry about tomorrow, and are painfully underprepared for retirement. All of us have felt the pull of marketing campaigns that tap into our personal hopes and goals. We buy clothes, cars and homes that reflect the way we want to feel about ourselves. Taken together, these day-to-day financial choices add up to a lifetime of financial health or instability.

Recognising that every financial decision is based on a story can help you tap into your underlying financial narrative.

Rule 2. Choose healthy strategies

The stories we believe lead us to choose certain strategies for meeting our needs. A person who believes that ‘good’ parents help their kids buy their first home, may sabotage their own financial security in order to nurture their children. This strategy may meet some basic needs (caring, nurturing, etc.) but it threatens others (basic survival in retirement).

The goal of a sustainable financial plan is that it will meet today’s needs without sabotaging the needs of our future self.

In order to do this, you need to recognise the difference between a need and a strategy. Needs are constant, but strategies are flexible. Even the frivolous items we buy on impulse are attempts to serve a fundamental need such as fun, comfort, ease or relaxation. Simply cutting back on expenses without addressing the underlying needs that those expenses are meeting is a recipe for unhappiness. This is why so many people set out to make a financial change only to find themselves ‘cheating’ on their plan.

To choose healthier strategies, ask yourself questions that help you identify the underlying need for your spending. “What are you afraid will happen if your kids have to work and rent for a long time, to save up a home deposit?”

Once you identify the need, you can devise a strategy that will meet the need without sabotaging your future.

Remember, there’s a story underneath the strategy. For example, if the ‘good parent’ story is leading you into financial insecurity, remember that ‘good parents’ model good personal financial decisions. The goal is to find a new strategy that will still meet the underlying need. Then following your plan will feel deeply satisfying.

Rule 3. Cultivate your value

Your most valuable asset…is you.

Every stream of income can be traced back to an asset that is valuable to others. While we don’t all start out with assets, we all have resources such as time, energy, and intelligence at the very least. Learning how to combine your unique resources into valuable assets that can increase your income stream is the heart, the very soul, of making money. When you learn to think of your money in terms of assets and resources rather than simply in terms of income, you will find that there are many ways to go about increasing your income that you may never have considered. You may already have potential income at your fingertips; be it unused valuables, a room or car you can rent to others, or a skill you can teach.

Learn to recognise and challenge the stories that influence your strategies for creating and consuming your stores of value, to lead a healthier and more stable financial life.


Sarah Newcomb, Ph.D. senior behavioural scientist for Morningstar, Inc and author of Loaded: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind

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