Seven mistaken beliefs about money

Our attitudes about money are formed in
childhood, according to Maggie Baker, Ph.D, a psychologist who deals with relationship, money
and wealth issues and is author of Crazy About Money: How Emotions Confuse Our Money Choices
and What To Do About It. And it’s these attitudes that shape how we use
money today. Unfortunately, we usually don’t
know it. People “can be very rational about money
and irrational about their behavior.” For instance, you assume you’re careful and
conservative with your cash. You might even
know all the right things to do. But once you start
recording how much you spend, you begin to see
patterns that suggest your behavior isn’t reflecting
those assumptions. We also might hold onto erroneous stories we’ve
picked up over the years. Here are seven mistaken
beliefs to relinquish. 1. Mistaken belief: Money makes you happy. “It’s not money that makes you happy,” according
to Kathleen Gurney, Ph.D, CEO of Financial Psychology Corp. and author of Your Money Personality: What It Is and How You Can Profit
from It. It’s how you use it. “If you don’t know how you want to use it as a vehicle to create
happiness, it will be used indiscriminately and
never achieve what you value most.” Consider your personal objectives, goals and
aspirations, she said. Don’t be swayed by how
others use their money, either. “The path to
achieving a greater sense of happiness lies inside
and not by following what others may do with
their money.” 2. Mistaken belief: Money is a scorecard. Some people believe “if I make more money, I can
be competitive and win the race,” Baker said.
When money is the top priority for a person, and
they lose it – because of a layoff, for instance –
their self-worth shrinks. (“They mix up net worth
with self-worth.”) They suffer significantly because money is the only thing that matters, instead of
another person who places greater value in family
and is passionate about other things, she said. 3. Mistaken belief: Someone will take care of
me. Many women commonly believe that a man will
provide for them, Baker said. (In one of her
workshops, women in their 50s still held onto this
belief, even though they had zero evidence of this
in their lives.) A similar belief is that God will
provide everything you need, she said. Placing the responsibility outside yourself can
mean you don’t pay attention to your money or
worry about managing it. And such avoidance can
prompt money problems. 4. Mistaken belief: There is never enough
money. According to Gurney, “this is a common mental
mistake and rationalization for not dealing with
the truth of ‘what is’ versus ‘what we would like it
to be.’” In fact, people tend to go into debt trying
to reach this point of enough, she said. The first step to living within your means is to
focus on what’s most critical, such as survival and
security, she said. Then learn how to add to your
money for the extras you want. (“…[E]arn it
through smart money management and not
through delaying the transaction through debt.” 5. Mistaken belief: These people must be
onto something, so I should do the same. “We hear of and watch others making certain
financial choices and we start feeling like ‘they
must be onto something’ and talk ourselves into
following suit,” Gurney said. She used buying real
estate as an example. A few years ago, this
became a key trend, and many people bought properties they couldn’t afford. Another example, she said, is “pulling retirement
money out of more conservative investments to
join in the frenzy to ride the stock climb only to
find out that they have missed the climb.” We can overcome this bias by “sticking to our
original strategy and solutions that made sense for
our particular money personalities, goals and
financial situations.” Also, remember that the
media provides “expert entertainment,” so it’s
often tough to distinguish between what’s truly prudent – and best for you – and simply popular,
she said. 6. Mistaken belief: You can get great advice
from financial gurus. While you can learn some helpful information, be
wary of one-size-fits-all financial tips. “Everybody’s
situation is unique,” Baker said. Many factors,
including your goals, age and risk tolerance, have
to be considered. Baker wishes that the media
conveyed the importance of working with a financial expert. Just like you’d seek out an expert
who specializes in an illness you have, you should
do the same with a financial advisor. When searching for an advisor, you can ask
friends, Baker said, “but be leery.” (Baker actually
ended up experiencing her biggest financial loss
after receiving a recommendation from a friend.) If
you do turn to friends, ask them how much
money, on average, the advisor has made for them, she said. Baker suggested visiting these sites for more
information: FINRA (Financial Industry Regulatory Authority), the American College of Financial Services and the Financial Therapy Association. When interviewing potential advisors, she
suggested asking these questions: Who is your ideal client? For instance, advice to a
30-year-old will be very different than to a 70-
year-old, she said. You want to find an advisor who
helps people with your net worth and who will
know which investments are most suitable for
you, she said. How much do you charge for your services? In a
typical year, how much would I spend on your
services? Do you make a commission from
trading? It’s very important to see if the advisor is
upfront about how much they charge and how
they’re paid. According to Baker, some advisors get paid a flat fee per hour, while others get paid a
percentage. “The more they make for you, the
more they make [for themselves].” Are you available anytime to answer my
questions? Do you subscribe to suitability or fiduciary
standards? Suitability is a lower standard of
responsibility. Fiduciary responsibility is when “you
have an ethical responsibility to act in the best
interest of your client,” Baker said. Let’s say an
advisor’s company bought too much Coco-Cola stock, and they need to sell it off. This might be
suitable for you, but it might not be in your best
interest. (Here’s more information on the distinction.) Consider if you trust or could trust this advisor.
You might want to pick an advisor from an
independent firm because they won’t need to push
company stocks, she said. 7. Mistaken belief: It doesn’t take much
effort to manage money effectively. Managing money actually “demands real
commitment and attention to detail,” Baker said.
“It involves sitting down and looking at all the
money facts of your life, [such as] your bills,
spending habits and goals.” If you’re married, sit down with your spouse and
get their ideas. “It’s a big mistake for one person
in the family to do all of the money without
consultation from the other.” (If one person is in
control while the other is oblivious, this leads to
relationship issues, she said.) “Pay a little attention to [your finances] every
day.” For instance, review your expenditures, open
your mail and check your bills, she said. Use
programs like QuickBooks to get a clear
understanding of how much you’re spending and
make adjustments as needed. While money is a taboo topic, it’s crucial to discuss
it with your family, Baker said. “Don’t be afraid to
talk about money, or to ask for help from a
financial therapist, your accountant or even a good
friend.” If your friend is struggling with the same
issues, you can work through them together, she