The 3 Money Personalities — and Why Yours Determines Whether You'll Retire Comfortably
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Everyone has a different approach to saving money, and yours can impact how much you have saved for retirement once it’s time to ditch your job in your golden years.
Here are three common “money personalities” and how to determine which one best fits your situation, plus how to use that knowledge to better your finances.
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Why your money personality matters for retirement
Your “money personality” is made up of the money habits, instincts and emotional reactions that you develop over time. It can shape how you spend, save and invest money (and whether you accumulate debt). Keep in mind that these are just general guides to give you a starting point when considering your relationship to money. Some people who are good at saving also splurge, and some people who meticulously invest also end up with debt.
Social Security will help when it’s time to retire, but most Americans need a combination of Social Security benefits and savings to retire comfortably. That’s why it is critical to assess your money habits now and take small, daily actions that give you more financial flexibility in the future.
The 3 money personalities
The three money personalities are the spender, the saver and the avoider. Everyone spends money, but “spenders” often embrace short-term pleasures and comfort and cast long-term thinking to the side. Spenders splurge on vacations or dining out, but they tend to operate paycheck to paycheck and may end up in debt to maintain their lifestyles, especially if costs continue to rise.
“Savers” regularly set money aside and invest it. Individuals with this money personality generally have good financial discipline and are likely adequately saving for retirement. However, some of these same people can save so much that they don’t get to enjoy the money they’re earning.
“Avoiders” prefer to avoid thinking about money. The thought of budgeting, investing and financial planning stresses them out. There is often overlap between the “avoider” and the “spender,” but some “avoiders” have good financial discipline — they just may not be open to making changes to their plan or trying new tactics to strengthen their foundation. Avoiders could be at risk of letting their cash in a savings account generating little to no interest.
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How to make your personality work for you
Determining your money personality is a good first step to making changes that can strengthen your financial plan. Then, understanding your strengths and weaknesses can help you build financial discipline and save for long-term goals such as buying a home, growing a family or retirement while still enjoying your hard-earned money.
For instance, someone who is a “spender” may want to make small changes to help them build their savings. They can increase the amount that they’re investing in a 401(k) or similar retirement savings account, have a certain amount of their paycheck automatically transferred to a high-yield savings account or try to reduce their monthly spending by a specific amount.
Savers can set some money aside for discretionary purchases. Even if it’s not much, rewarding yourself can give you the extra motivation to earn (and save) more money.
Avoiders can take small steps such as checking their 401(k) contributions, reviewing their budget or setting up automatic contributions to their brokerage accounts.
You don’t have to address every weak spot right away. Building guardrails around financial habits, such as automatic retirement contributions to enable guilt-free spending, can result in a better future when it’s time to retire.