The Psychology of Money

The Psychology of Money

Although the fundamentals of financial management are very much about numbers, these fundamentals tend to be somewhat useless if the psychological aspects of financial management are ignored.

One of the psychological issues in financial management is the tendency for people to believe financial stress is only something poor people or irresponsible people deal with.  This is far from the truth.  Financial stress is more realistically compared to weeds.  It is an undesirable reality that nobody is exempt from.  The solution is not to wish it weren’t so; it is to learn to manage it.

Another psychological issue in financial management is comparing our circumstance to other peoples’ circumstances.  The following story highlights some of the dangers of these comparisons.

Let’s assume that a group of people who know absolutely nothing about skydiving decide they want to jump out of an airplane.  A few of the people are fortunate enough to be warned about the dangers of skydiving before they jump and receive some training in how to use a parachute.  Unfortunately, some of the other people make the jump without any knowledge of the dangers involved.

As the people jump from the plane, they all feel the rush that comes from flying through mid air.  According to their training, the people with parachutes pull their ripcords at the appropriate time.  Their parachutes come out, and their acceleration is abruptly slowed.  The people without parachutes continue to accelerate at exhilarating speeds.  As these people pull away from those whose chutes have stopped their acceleration, some of the people with parachutes begin to question the wisdom of their training, envious of the others who are still feeling the exhilaration of the free fall.  Unfortunately, some of these people are convinced that their parachute is preventing them from experiencing the ultimate exhilaration that the people ahead of them are still feeling, so they cut their parachutes loose and once again begin to free fall.

Of course, in reality, no one jumps out of an airplane without realizing some of the consequences involved, but the financial equivalent is very much a reality.

If we are to have success managing our finances, we first have to rid ourselves of the mindset that financial management prevents us from experiencing ultimate exhilaration.  Yes, good financial management, at times, may feel like it is slowing our “acceleration,” preventing us from experiencing the exhilaration that others seem to be experiencing, but, just like a parachute, good financial management makes the landing much more enjoyable.

ReliaBalancetm is like our own personal financial parachute.  At times it will feel like it is holding us back, but it will really be protecting us, allowing us to enjoy as much exhilaration as possible without the pain of a crash landing.