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Six financial personality types - which one are you?

The Social Value Spender

Does shopping make you happy? Do you frequently buy your loved ones presents “just because” and blow the budget at Christmas and birthdays? You could be a social value spender.

If you are concerned about your spending and borrowing habits you need to study your bills — perhaps with the support of a close friend. 

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Six financial personality types - which one are you?

Six financial personality types - which one are you?

https://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080

ft.com

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Key Ideas

Financial psychology

 ... is a somewhat overlooked discipline that occupies the space between psychology and behavioral economics. Advertisers and marketers trying to tempt us to spend money are well aware of it.

If we understand how the financial environment affects us, we can better control our cash instead of being controlled by it, turning us into more rational investors, more successful savers or less impulsive shoppers.

The Anxious Investor

Lovers of risk, anxious investors trade frequently and believe they have the edge over others. Many have absolutely no idea what their returns actually were and only remember their good decisions.

Despite their overconfidence, they are prone to be beaten by the markets — and frequent trades mean they often rack up high levels of charges.

The Hoarder

For hoarders, money represents security. They abhor risk and may even stockpile cash that they would probably be better off investing — or even spending.

Find an advisor you feel comfortable with who can discuss the right investment approach — and level of risk — for you.

The Social Value Spender

Does shopping make you happy? Do you frequently buy your loved ones presents “just because” and blow the budget at Christmas and birthdays? You could be a social value spender.

If you are concerned about your spending and borrowing habits you need to study your bills — perhaps with the support of a close friend. 

The Cash Splasher

Cash splashers view themselves as generous, but they also use the money to make others think more highly of them. 

They are likely to wave their checkbooks about at charity auctions and spend money on things they could easily do without, from expensive cars to club memberships.

The Fitbit Financier

They check their online bank balance and track their spending as often as someone training for an extreme sporting event measures their calorie intake, resting heart rate and sleep quality. 

Take a step back and look at the bigger picture. A session with a financial planner could help you identify your goals and plan for a less stressful future.

The Ostrich

Someone who would rather bury their heads in the sand than organize their finances.  “Making no decision always feels easier than the possibility of making the wrong decision.” 

Ostriches should take their heads out of the sand — slowly. Set aside an hour a fortnight at first to examine your finances, taking a close look at your income and outgoings, and where being more organized and aware could save you money.

SIMILAR ARTICLES & IDEAS:

The Investor

People who invest are those who love the risk, trade frequently and have enough confidence to think they will beat the market.

A 2011 study found out that most investors u...

The Big Spender

The Big Spenders like to make social statements by having the latest car, clothes, or phones. They use the money for love and attention and are the main representatives of consumerism.

Advice: Think twice before making a purchase and try to filter the things that you really need from those bought by reflex.

The Ostrich

The Ostrich is someone who would rather bury their heads in the sand than organize their finances. 

Advice: Ostriches should try to take slowly their heads out of the sand. They should try to examine their finances, take a close look at a better saving rate and consider approaching a financial planner.

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To accumulate wealth...
  • You need to make it. You need a long-term source of income that's enough to cover your basics.
  • You need to save it. You need t...
Making Enough Earned Money

Earned income comes from what you "do for a living."

  • Consider what you enjoy as you will be more likely to succeed financially.
  • Consider what you're good at and see how you can use those talents to earn a living.
  • Consider what will meet your financial expectations.
  • Consider how to get there. Determine the education requirements, etc.

Evaluate your income situation annually.

Saving Enough of It

To ensure that you save enough money, your wants should not exceed your budget.

  • Track your spending for at least a month.
  • Trim the fat. Break down your wants and needs.
  • Adjust according to your changing needs.
  • Build your cushion. Aim to save around three to six months' worth of living expenses.
  • Contribute to a retirement fund and try to get the maximum your employer is matching.

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The Slow And The Fast Way To Build Wealth
  • The long-term approach to wealth building: If you’re younger and your income limits allow, open up a Roth IRA. Invest in mutual funds and ETFs while making sure you have enoug...
Todd Tresidder
Todd Tresidder

“Great wealth builders focus on both saving money and earning more.”

9 Ways To Building Wealth Fast
  1. Save on vehicles. Before buying a car, investigate vehicle reliability, pricing and financing.
  2. Rent. Most rentals offer more flexibility in case you need to move. Also, not having the mortgage payment allows you to start saving earlier.
  3. Don’t be a consumerist, buy only the things you really need.
  4. Save a percentage of your income so you have more money to invest.
  5. Work hard on your current work regardless of your feelings for it. It’s easier than finding a new great opportunity and may lead you into a promotion.
  6. Educate yourself even if it doesn’t bring any immediate benefit, being educated opens new opportunities on the long run.
  7. Invest in yourself and your marketing to open up new opportunities.
  8. Being an entrepreneur is the best way to maximize your earnings, short of being an investor. Try it, even if it fails the learning from it will be invaluable in your next attempt.
  9. Real estate won’t make you rich overnight, but it’s a solid strategy to increasing your network. 
Real Estate Investment
Real Estate Investment

Real estate is filled with wins and losses. It is not a guaranteed profit game.

Before you make your first investment, consider if you are ready to risk facing something like a subprime m...

Beginner Investment

Although real estate can be intimidating for beginners, you can start your journey with a few easy methods.

  • Real Estate Investment Trusts: REITs enable you to buy shares in a company that works with income-producing real estate and earns high dividends.
  • House Hacking: It involves buying a property with multiple living units where you live in one and rent out the rest for income that can pay off the mortgage or pay for maintenance.
  • House Flipping: Buying cheap, underpriced homes, making renovations with as little as possible, and reselling it in the market for profit.
Risks Involved
  • The Unpredictability of The Market: There is never a guarantee that you will make a profit when you make a sale.
  • Credit Risk: When investing using leverage, the bank owns the property until you have paid the loan in full. If you are unable to pay your installments on time, you risk facing foreclosure.
  • Depreciation: Generally, real estate property will increase in value, but it is not guaranteed.
  • Negative Cash Flow: It is the result of a low occupancy rate due to bad tenants that cause destruction or irregular payments. Property with hidden structural problems could also cause problems.
  • Liquidity Risk: If you need cash quickly, you cannot rely on the money you invested in property. Real estate is a long-term investment.

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Financial Personalities

There are five different types of financial personalities, each of them having their own set of values and outlook towards money:

  • The Big Spenders: The ones who place a high val...
Saving Tips For All Types

After you have figured out your financial personality, here are a few tips to save money:

  • Big Spenders need to consider fun alternatives to the high-purchases with things that cost little but bring real quality and happiness and lead to savings.
  • Savers need to start living their lives, and not live in misery in the present, just for some future security.
  • Shoppers need to recognise the emotions and value in saving money for their future, like a dream home.
  • Debtors need to put some money in automatic saving funds to build their savings.
  • Investors would do great in future, but can also make do with some purchases in the present, striking a balance.
The fear of regret

Being afraid of regret is a powerful driver of maintaining the status quo in our lives.

The “disposition effect”

It's a bias related to money and it describes how investors hold on tight to losing assets. The driving force behind this behavior is our fear of regret.

It shows we are very hesitant to sell an asset at a loss and we tend to hang on to it as it keeps dropping in value, hoping it will pick up again.

The “sunk cost bias”

When starting new projects, we tend to have high expectations of them doing well. We put a big amount of effort into them and even if see they don't go that well, we still choose not to opt-out. Instead, we hang on them longer, because we feel regret of leaving a project before it materializes.

We therefore fall into the trap of irrationally hanging on to it in order to avoid regret temporarily. 

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Tsundoku
Tsundoku

In the Japanese language, there is a term to design the behavior of a person who buys books only to leave them unread on a shelf at home. This term is ‘tsundoku’ and it implies the combin...

Bibliomania

... or the collection addiction, was first spotted in Thomas Frognall Dibdin’s novels and it describes the unstoppable act of collecting first editions and illustrated copies of literature

Later on, the same term would describe a person who is more passionate about rather than obsessed with building up a collection of literature.

Tsundoku vs. Bibliomania 

Though both terms are used in order to describe behaviours related to readers, Tsundoku implies the idea of having as goal to read books rather than to simply collect them, while Bibliomania refers to the will to collect books, rather than to read them.

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Investment explained
Investment explained

An investment is a gamble: instead of the security of guaranteed returns, you're taking a risk with your money. 

You can invest in Shares, Bonds, Funds, Government bonds (gilts), ...

How stock markets work
  • A stock market is simply a place where buyers and sellers meet to sell shares.
  • A share is a divided-up unit of the value of a company.
  • Shares exist to boost profits of firms to turn a business into a financial success.
  • Enter a stock market: in return for your cash, a business offers you a share in its future – so you essentially own a tiny slice of that company and become a 'shareholder'.
  • This slice of the company you own can then be traded with anyone who wants to buy it.
Share price of a company can rise and fall
  • The price is initially set by the firm offering shares.
  • Its price on any given day can be determined by poor financial results, the economic health and so-called 'sentiment', ie, if City buyers think a firm will struggle, its price can fall. 
  • Shares are listed on an 'index'.

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Investing defined

Investing is about laying out cash or assets now, in the hope of more cash or assets returning to you tomorrow, or next year, or next decade.

Most of the time, this is best achieved th...

Productive assets explained
  • Productive assets are investments that internally throw off surplus money from some sort of activity. 
  • Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
  • The three most common kinds of investments from productive assets are stocks, bonds, and real estate.
Investing in Stocks
  • It means investing in common stock, which is another way to describe business ownership or business equity.
  • When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
  • Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.

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We Are Put Off By Fear

We always think about the risks involved in making a big chance in life. We consider the risks and then decide not to do it. But, the risks shouldn't scare us into inaction.

Make old Moves

You can't achieve anything if you lock yourself up in your home. To live life to the fullest, you need to make bold moves. And this doesn't necessarily imply risk-taking.

Try to limit your potential losses. Protect the downside.

Richard Branson

“It is only by being bold that you get anywhere. If you are a risk-taker, then the art is to protect the downside.”

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