Which Money Personality Are You?
Mon April 8th 2019
Know yourself and save for the retirement you want
Have you thought about your retirement? Even if you're still young, it's worth making a plan. It might help to know that the Commission for Financial Capability has calculated the most you'll need when you retire is $205,000, on top of your super. That covers about 25 years, and includes some luxuries.
Maybe you come from a long-lived family, so you're expecting to live longer than age 90. Or you already have health problems, and most of the previous generation of your family passed away after ten years of retirement. In the first case $205K may not be enough, and in the second it seems like a lot of hard graft saving money you don't expect to spend.
No-one can predict the future and be right every time. You could live to 100, or get hit by a bus at 66. Whatever happens, it's best to assume you'll have a long and healthy retirement (more and more people do), and you want to afford all the things you've been putting off while you were working. So your first step is to work out the amount you'll need each week when you stop working.
Take into account what you want to do – travel the world? Build a gallery for your valuable art collection? Or relax by the beach and play croquet once a week with friends? Whatever you are dreaming about, start by having enough to live as comfortably as you did when you were working.
If you know what you'll be earning just before you retire, you can calculate on 70% of that (less the amount you're saving) and work out a total amount over 25 years. That figure could be the lump sum to work toward.
If you've joined KiwiSaver, well done. Meanwhile, for the best savings outcome, it helps to find out what money personality you are.
What's so important about a money personality?
Research by Dr Sonja Kassenboehmer in her paper Locus of Control and Savings indicates that your saving and spending behaviour will have an impact on how much money you'll have when you retire. It's a case of knowing yourself and making fully aware decisions about your retirement. Dr. Kassenboehmer states:
"If you think everything is due to fate or luck, you're not really actively taking responsibility for the decisions in your life. However, if you are pragmatic and believe the decisions you make will impact on your life, then you will definitely have more [wealth]."
These finding are backed up by other research, especially in behavioural economics (Borghans et al., 2008, p.1035) that shows the effect of personality on financial decision-making.
So, what is your personality?
The four money personalities
There are four economic personality types – each of us is a mix of these, with one dominate type at any given time. As your career develops and your lifestyle changes, so may your money personality. When you know what that personality is, you'll have a better handle on the financial decisions you make, and ultimately a bigger chunk of retirement cash.
1. Spender: Admit it – you like spending money. You love buying presents for special people, but more than that, you take risks with your money. Your KiwiSaver or other investments are on riskier levels, and too often you max out your credit card buying on impulse. Shopping at the supermarket is a clue – you might make a list, but you end up buying twice or three times as much as that. You don't save because you never have the available cash to put aside for your retirement.
Here's some things to do if you're a spender:
1.Pay off that credit card and open a rainy-day savings account.
2.Cut up your credit card (do it now.) Set up APs for your regular outgoings, work out a budget and allow yourself a bit of pocket money for the occasional coffee. Save the rest.
3.Raise your Kiwisaver contribution to the most you can afford – you're a spender, so you won't be saving much any other way. Get used to living on less money.
4.You'll like this one: choose a higher-risk KiwiSaver fund level. Over time you'll make more money from your investment, but be warned – you could have some losses along the way.
2. Saver: You're not actually a miser, but you come close to it. You're a bargain hunter who probably has a healthy savings account, an emergency fund and some cash under the bed. You also don't like to talk about money, and you are shy of asking your boss for a raise, so may be missing out.
What you can try if you're a saver:
1.Stop being shy, and ask for help identifying your money goals. A financial advisor can help you manage your savings better, while helping you relax and have a bit more fun along the way.
2.If you're saving all over the place – emergency funds and other investments – you don't need to put more than the minimum into your KiwiSaver, just enough to qualify for the government contribution.
3.If you're watching your KiwiSaver like a hawk, and panicking every time the high risk fund drops a bit (because it will), opt for a conservative or balanced approach instead. You'll still make money, and you're less likely to lose it, which is easier on the nerves.
3. Security seeker: Maybe you grew up in poverty, or simply want the safety that having money brings. Whatever the reason, you're likely to worry a lot about money, and about making big decisions like buying property or investing. You have a hard time accepting that generally, you have to spend money to make money.
Ways to find security and stop worrying
1.A financial advisor can help you look at money as a tool, rather than a security blanket. You'll get advice about identifying goals, and how to manage your money so you feel confident and unafraid, now and for the future.
2.Be brave – put your KiwiSaver contributions up to the highest level you can manage. You haven't been a risk-taker up to now, and it's time you started really building your retirement savings.
3.Don't create stress for yourself – set your KiwiSaver at a conservative or balanced fund. That way you won't get scared at the highs and lows of the riskier fund, but just happily watch your saving steadily grow.
4. Avoider: You have your head in the sand, regularly ignore bills that end up mounting with overdue penalties and demands. Maybe you are really a teenager at heart, or maybe you're afraid of what you might find if you look too closely. You don't save, you don't think about retirement and you don't know where to start.
What to do right now if you're an avoider:
1.Open your bills and pay them, and set up a rainy-day fund.
2.Take scissors to your credit card. It's one debt that's too expensive to ignore.
3.Set up APs – for all your regular outgoings, and also for regular saving.
4.Put up your Kiwisaver contribution as high as you can afford. You can safely forget it then, even though your other funds may disappear toward emergencies and late payment penalties. You'll want that KiwiSaver money later on, so it's good you can't touch it until you retire.
5.If you choose a high-risk KiwiSaver fund level, you could make some really good money over time. And because you probably won't notice (because you avoid looking), the inevitable ups and downs of your money won't stress you out.
You'll probably be a mix of these money personalities, so there will be things you do that mean you miss out on the best financial plan
Think about how money makes you feel, and find ways among these four personalities to rein in your spending, overcome your fears and make a plan for the future. We all get old, but by then it's too late to do anything about a retirement fund. Start now, and live to a healthy, comfortable old age.
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