Money is a basic need, just like food, water, and shelter. Money may be an even greater need since you can normally not eat, drink, or have a safe place to sleep without it. We all have different relationships with money that are shaped by our experiences as children and as working adults. For some, money is a very scarce and precious resource. For others, money is abundant and used without much thought or care.
I believe one of the primary reasons for cyclical poverty (or even living paycheck-to-paycheck) is an unhealthy relationship with money, usually caused, at least partially, by impactful and formative experiences as a child. I believe the opposite to be just as true: a primary factor of generational wealth is a healthy relationship with money. There are many other contributing factors, some possibly more important than a healthy or unhealthy relationship with money, but in this article I want to focus on how to build a healthy relationship with money and how that can, potentially, help you break the cycle of living paycheck-to-paycheck.
Compare yourself to others as little as possible
It is impossible to win by comparing yourself to others financially. There will always be someone that has more money than you or a nicer house, car, or clothes. My family was not poor growing up but we certainly weren’t wealthy. When I was a kid, I wanted brand-name clothes to signal to others that we were just as well off as they were. I felt ashamed that other kids got the latest video game console for Christmas and we didn’t. I wondered why we used so many coupons at the grocery store when other families got by using none at all.
It wasn’t until I became an adult with a full-time job that I realized I was actually proud of my parents’ financial habits. We didn’t usually get the latest clothes or video games, but we always had food to eat, clean clothes to wear, and a warm bed to sleep in. I had spent my entire life, until about the age of 25, longing to have as much as everyone else. But I discovered that wasn’t nearly as important as I once thought it was. Who cares if I have name-brand clothes if I like what I’m wearing? So what if we use coupons at the grocery store? Many wealthy people love to be frugal and save money.
Resisting the urge to compare yourself to others financially is much easier said than done, but comparison can prevent you from being happy with what you have and keep you on a financial hamster wheel, always racing towards the top that you will never reach.
Teach yourself about money
My parents had no idea what a Roth IRA was or how powerful an HSA can be. I learned from them that it was important to save money (in a savings account), but not much else. I didn’t receive any formal financial education until college. When I started learning more about personal finance, my world was turned upside down. I learned that it was possible for regular people to become wealthy. I previously believed investing was just something rich people did.
Many Americans are financially illiterate, and you may be one of them – and that’s okay! It is easier than ever to educate yourself about money and learn how to actually build wealth. The Money Guy Show is a great place to educate yourself about money. No matter whether you are just trying to get out of debt and stop living paycheck-to-paycheck or are searching for advanced investing strategies beyond your run of the mill Roth IRA and 401(k), we have content to help you. The Financial Order of Operations is an incredible starting point for anyone that isn’t sure exactly what to do next.
When it comes to educating yourself about personal finance, take a proactive approach rather than a complacent one. Approach it with an open mind. What you learned when you were younger may not be true.
Use budgeting tools to keep yourself on-track
For me, budgeting was an essential part of building a healthy relationship with money. Without a budget, I spent every single dollar I made every month. If for some reason I had money leftover at the end of the month, I would find something to spend it on. Maintaining a budget helped me realize how wasteful some of my spending was. It helped me set financial goals and earmark money for future saving and spending. I used (and still use) the popular app YNAB, which is built around the idea of giving every dollar a job right when you earn it.
This method worked very well for me. Every dollar immediately had a purpose; no more money sitting around in my bank account waiting to be spent frivolously. I reached a point where I would budget months in advance, and the money I earned in January would be assigned to budget categories for May. Rent, Roth IRA contributions, dining out, groceries, electric bills, and more would all be covered well in advance. I felt like I didn’t have much extra spending money because every dollar had a purpose. In reality, I had a substantial amount of potential spending money, but since all that money was earmarked, to me it didn’t exist.
Once budgeting and spending become second nature, you may graduate to a cash management plan, where you have the ability to save what you need to save every month without sticking to a strict budget. Personally, I still use a budget and don’t plan on stopping anytime soon. I know that I naturally spend less and save more when I am planning where every dollar goes in advance.
Give yourself permission to spend a healthy amount
When I started budgeting, I quickly learned that I would go crazy if I didn’t have some money set aside for unplanned, frivolous spending. A big part of having a healthy relationship with money is being able to spend money that you know you can afford to spend without feeling guilt or shame. People of all levels of wealth and income struggle with this.
One major reason I’ve noticed people struggle to spend money on unnecessary expenses is uncertainty about their financial habits. They don’t truly know whether they are saving enough for the future, so out of an abundance of caution, they severely restrict their spending to save even more. It is difficult to find a perfect balance, and you can quickly go from not spending enough (as crazy as that sounds) to overspending.
The key to finding a perfect balance is identifying all of your financial goals, determining what you need to do to achieve those goals, and implementing a plan that aims to account for as many “unknowns” as possible (such as investing returns, changes in income, big life events, and inflation, just to name a few). Our Know Your Number course is a good place to start thinking about those goals and what they will take to accomplish. Meeting with a fee-only financial advisor is a great next-step for those who would benefit from a second set of eyes or financial co-pilot.
A healthy relationship with money doesn’t develop overnight. If you currently believe you have an unhealthy relationship with money, it is possible to overcome prior habits and beliefs, but it takes time. As someone whose relationship with money has changed drastically over the years, and become healthier over time, I can say without a doubt that starting the work today is very much worth it and can lead you to feeling happier, more secure, and confident in your finances.
