4 Financial Identities and Making Them Work for You
Money plays a part in everyone’s life. We all have different perspectives as it relates to money and how we choose to spend it. Those perspectives could be considered our financial identities. It’s the way in which you approach money, your spending habits, and even the way you choose to store it. The following identities may not encompass your entire approach to money but leave you with thoughts on ways to improve.
The giver identity views money as means to helping people. As a giver you may be the person that people call on when they need some financial help. You may view this as a responsibility. A positive to this approach is that the responsibility of giving to others usually means that you are a conservative spender on yourself. One of the drawbacks of this mindset is giving so much to others that your financial future becomes less important.
Pro Tip: Pay yourself first. This means to make your savings and financial goals a priority. To ensure this is done, make your savings a bill. Another tip is to have a category in your budget for giving and assign a limit to it. The limit should be a figure that will put your financial goals first, but also satisfies the need to help.
For a planner, tracking and knowing exactly how your money is spent is of the upmost importance. The budget of a planner probably looks like a work of art with things calculated down to the penny. This approach works well for establishing a concrete budget and for knowing exactly where your dollars are going. A drawback of this identity is not planning for the unexpected, and fluctuation in budget. This can cause a lot of stress and can even discourage the best of planners.
Pro Tip: When writing out the plan for your money, overestimate the amount you will need for each category. Overestimating will help in case of unexpected fluctuations in your budget. If at the end of the budgeting period, you have not spent the extra money you added in, then you can just save that amount. Using this tip will also help to increase your savings in the long run.
As a spender your view may be that if you earn the money then it is yours to spend how you please. Money is definitely made to be used to finance your current and future lifestyle. For this approach a positive is that a spender typically takes really good care of themselves. However, a drawback is not considering opportunity costs and savings potential. An opportunity cost is the benefit or value of the alternatives to your choices.
Pro Tip: When spending money, think about the alternatives to what you could be doing with the money. Your bills are a priority and if you can help it, don’t pay late fees. Another tip is the same as the one mentioned above for a giver, make your savings a priority. When choosing to save before spending, you will make it easier on yourself if something unexpected comes up.
With the passive approach, you may not have a budget that you make and track each month. The budget of a passive person may be a figure that you keep in mind for how much you’re willing to spend. You may not feel the need to itemize all of your income and expenses. With this mindset, you keep financial stress low as long as you stay below your ideal number. A potential hindrance to this approach is spending large sums of money in categories that could be adjusted. This drawback can cause you to miss out on potential savings.
Pro Tip: Take a month and track your expenses to get a clear idea of what you’re spending money on. After tracking your expenses, divide them into categories and total them. Look at where you stand, perhaps you can cut back on some things to save more money. Don’t view budgeting as a mundane task but a way to be intentional in your spending.