#029 Our relationship with money

Intro

Hi everyone, welcome to how to live, a podcast that explores ways to live a good life. I am your host Sharad Lal.This is episode 29. The topic of money gets different reactions. Some love earning it. Some love spending it. And some don’t want to talk about it. All of us come at money from different angles. What’s your relationship with money? How was it formed?

Research shows that our relationship with money not only drives financial decisions but more importantly it drives life decisions.  What career to pursue?  Where to live? Who to marry?

In today’s episode we’ll help you explore your relationship with money. What shaped it? What’s working favourably? What’s limiting you? And more. We will, however, not cover investments and personal finance. 

Before getting into the episode

But before getting into this episode, we are very pleased to share that How to Live Podcast has now completed a year!! Through this platform, we’ve been able to share ideas on mental health, relationships, career, and personal growth that have resonated with many of you. Thank you for kind words on episodes that have impacted you, follow-up questions, and the changes this has inspired in your life. With your support in spreading this within your network, we hit #3 in Singapore. Top 5% globally, and are now listened to in over 75 countries. Please do consider following us on Spotify, Apple Podcasts or wherever you are listening to this. Thank you in advance

JJ 

Back to the episode. JJ still remembers the day he topped his class in school. He came back home very excited. Picked up the phone. Dialled his dad’s office. Those days, phones were old school. Took a while to connect. Finally he had his dad on the line. Proudly shared the good news. Dad was overjoyed. Proud of his son, promised to come home early take him to the market buy him his first pair of Nike runners. That had been dad’s promise.

If JJ topped he would get him top of the line shoes. JJ knew exactly what he wanted. The one’s Agassi wore. As soon as he entered the store, he picked out his size, tried them on and was done. He was thrilled. Wanted to wear his runner right away, show them off to his friends. But that was not quite what happened. His dad felt the price could be a little cheaper in another store. So they went there. And then another. 5 stores later they came back to the 3rd store. Where the runners were the cheapest. They were still not done, however.

His dad spent 30 mins asking for a discount. Negotiating hard. Finally the shop owner had to comply. That was the day JJ got his first pair of Nikes. That day also marked JJ’s first memory of money. JJ’s father was a self made man who’d worked hard to provide a good life for his family. They’d come a long way from their humble starting point. On the dinner table, conversations revolved around money. Stories about working hard, upward mobility, saving for the future and criticism towards anyone who’d suggest anything remotely luxuriou.

 JJ looked-up to his dad. His work ethics, success, and humility. Ever since not only has JJ been careful with money but has focussed all attention towards maximising money. This drive has led him to a successful career with dynamic companies, huge net worth, and of course an aversion to spontaneous shopping. He just cannot do it - he has to check prices in 3-4 stores before buying anything. Luckily online shopping has saved him a lot of time.

Money Scripts

Like JJ, our relationship with money starts in childhood. These dining table conversations form the lens through which we view money, often for life. Financial psychologist Dr. Brad Klontz calls these “money scripts”. These are scripts shaped by family stories, parental behaviour and direct experience. Most of the time this is unconscious. However these scripts are so powerful that they influence not only how we think about money but also how we think about life. Our dreams, career, relationships. Through research, Klontz classified money scripts into 4 categories. Money Avoidance, Money Worship, Money Status, and Money Vigilance.

• Money Avoidance 

Let’s talk  money avoidance first.“Money is the root of all evil” best describes this category. Folks associate money with greed and corruption. They feel undeserving of money and even guilty when they desire it.

• Money Worship

Money worship on the other end is best described by “Money will solve all my problems”. Folks look at money to provide security to them. They don’t sit on money but spend it on stuff. Because more stuff equals more happiness. The aim of money here is internal to help create a better life.

• Money Status

Money status, however, is externally focussed. Folks in this category are very competitive and compare their self worth to others. “Self worth is equal to net worth” best describes this category. “Wealthy people are happier”. More money = Success and status 

• Money Vigilance

Lastly we have the Money vigilance folks. They’re best described by “It’s important to save money”. People in this category are very careful with money. They rarely take debt to buy anything. And feel bad when spending. 

So those are the four scripts. Money avoidance where money is not talked about, money worship, where money can buy many good things, money status where money enhances self worth and money vigilance where money needs to be saved and not spent. 

Where do you stand? Is it one clear category or maybe 2. If you don’t know yet, don’t worry we’ll go deeper into these 4 categories and come back to you.  

Financial Flashpoints

But before that let’s talk about JJ’s sister. Her most powerful memory of money was when she was a teenager.  She went to a friend’s birthday party. All excited with a lovey gift. And soon noticed everyone sniggering at her. She heard the gossip behind her back. Look at that ugly dress. So grandmotherl. Who wears those shoes. You get the picture.

This was a very traumatic event and shaped her view of money. She remembers the countless evenings arguing with dad that money should be spent for a better life. Her friends had less but dressed better, lived better and were happier. What’s the point of this money if it just sits in the bank?

These highly emotional events that leave a mark on us are referred to as Financial Flashpoints. Financial Flashpoints can heavily influence our relationship with money. JJ and his sister lived in the same house but had radically different beliefs about money even though they were fed the same script by their parents. 

Some more examples of Financial Flashpoint. Moving to a smaller house after a parent loses their job. One parent controls the other through money. Becoming popular after being dropped to school in a mercedes.

Collective Influence

On top of these individual factors, collective influences also shape our relationship with money. In developing countries - many don’t have a safety net so making money, saving money becomes more important than in developed countries.Other collective influences can be schools, community, or religion. 

Money Scripts - deep dive into what’s working what’s not

So let’s get back to you. Do you know what category you could be in? If you don’t. You can find out by visiting yourmentaladvisors.com and answering a few questions. I will drop a link to that in the show notes. Whatever category we might be in. There are elements within that category that help us thrive. But there are also watchouts that make our relationship with money unhealthy. So let’s explore each category with this objective.

Money worship 

Money worship, where we think money can buy us happiness. On the extreme end can lead to rampant consumerism. Latest gadgets, bigger houses, compulsive buying. Money is used for addictive never ending dopamine hits with more and more stuff. However, when we’re in control, we can use money to find joy in the good things in life. We discussed how to get joy out of consumerism without the cravings in episode 20. 

For more you can listen to that episode from a money perspective, at the core of money worship, is the need to feel rich. Personal finance advisor and entrepreneur Ramit Sethi created a framework called Money Dials through which anyone can feel rich, in a healthy and sustainable way. It’s about asking yourself what’s the one thing you love splurging on. Maybe it’s an expensive morning coffee or eating out, luxury travel or everything fitness related. 

 What if you could spend unlimited amounts on this? If it’s fitness, you could go to the top gym, have the best instructor, get the best gear. You don’t need to think twice before buying anything fitness related. If fitness is your thing, won’t unlimited guilt free spending on it make you feel rich? That’s the premise of money dials. There are 10 dials and we choose 1 or 2 dials where we spend as much as we want.

For the remaining dials, we reduce our spending. Overall the budget doesn’t change our annual fitness budget can go up by 4 times, but we correspondingly decrease the budget for rent, food, and items in the remaining dials. The cool insight that Ramit uncovered is that by getting to spend as much as we want in something we love, we get to live rich life. We get to feel rich. And there is an element of control. For more on this, you can check out Ramit’s site iwillteachyoutoberich.com.

Money status 

Feeling rich did not appeal to bestselling author Morgan Housel who wrote the book psychology of money. As a valet during his teenage years, he would see rich folks drive up in fancy cars. He made an interesting observation. People don’t think  what a cool guy driving that ferrari. Instead they think how cool would I look if I was driving that Ferrari. This thought made him investigate the psychology of money deeper and he figured out the big difference between rich and wealthy. 

While rich is the flashy money one sees, wealth is the cars not bought, the luxury vacations not taken, the accumulation of assets not shown off. Wealth is often hidden and deep. If the aim of money worship is being rich, the aim of money status is being wealthy. It’s this money status mindset that probably got Rajat Gupta to the top.

Rajat was born in Calcutta. Reasonably humble background. Orphaned as a teenager. From that background he worked his way up to become the Global CEO of McKinsey in 2007.Back then getting Indians to run global companies wasn’t even a thing. And Rajat was running a company which arguably had the brightest minds in the business world. He was well respected, later became part of prestigious boards like Goldman Sachs and was worth 100mn dollars.  

Unfortunately Rajat walked into the trap that most Money Status Folks can easily get lured into the trap of “Comparison”. Even with 100mn dollars, he compared himself to friends in the silicon valley who were billionaires and felt inadequate. This led to insider trading, jail time and dishonour. Most of us will not resort to illegal means but the “comparisons” can still affect us.We may be happy to get a good bonus but feel disappointed when someone gets more. 

During his research, Klontz found that the money status category is common among folks in lower income households. It’s ironic how the mindset that propels us to the top is the same one that makes us feel inadequate, not good enough, and less happy that we were to start with. 

Money avoidance

On the other end of the spectrum are the money avoidance folks. People who think money is bad and should be avoided. These folks don’t size up people based on wealth, or indulge in rampant consumerism. Many acknowledge money as a part of life, though not the most important part, and understand its practical utility. However, on the extreme, internal scripts that say “money is evil”, “money ruins relationships” can debilitate us. We could get deeply uncomfortable with anything business or money related. One might charge very low fees for their services due to guilt. Or be embarrassed to request a client for payment. Or be reluctant to ask for a pay raise. This could lead to resentment and frustration. 

A strong reaction to money in this way is a sign of the shadow. When one represses the need for money one can self sabotage by subconsciously making choices that deplete money and leave us worse off. This creates emotions like guilt when we desire money, anxiety and worry. We discuss the shadow in episode 26 for those interested.

Money Vigilance 

Another category with similar downsides is Money Vigilance. In this mindset, saving for a raining day and building a safety net seems prudent. However, being over-obsessed with saving causes needless anxiety. Folks can have sleepless nights upset about very small yet necessary expenses. We might avoid the simplest of conveniences, even though we can afford it. Maybe we don’t buy food on a flight, because it’s marginally expensive. As a result the whole family goes hungry.

Or if we do end up spending on say a good meal to celebrate an occasion. In an attempt to get the most out of our expense - we might keep pestering the staff, complain about the food and spoil the entire experience. Maybe many of us are ok doing away comfort or convenience, but there’s another element that gets impacted. Time. We waste a huge amount of time trying for the smallest of savings. It’s like the millionaire who takes a longer driving route to avoid a $1 toll way. Or maybe it’s searching far and wide for the cheapest price on small items or negotiating endlessly. Time gets wasted and we don’t put a value to our time.

Money to buy freedom

Now if we flip it. Instead of using time to save money, we use money to save time. We use money to buy freedom. How does that sound? This is not covered in any of the money categories but it’s a huge trend nowadays so it’s worth exploring. Many look at building up some savings. Then retiring or working part time. This gives them control over time which they can use to spend time with kids, quality leisure, travel. 

I think that’s a great way of thinking about money but once again there’s a trade-off. Everything has a cost. Freedom too. The cost of slowing down could mean a  lower salary. Imagine a 50% reduced cash inflow every month. Maybe on an excel sheet it could work. But how does it sit emotionally when a lifestyle contracts. One needs to decline expensive holidays with friends

One thinks twice before those 5 dollar coffees. Bringing income or lifestyle down is tough mentally. But getting more control of our time is worth striving for. What’s the balance - that’s for each one to figure.

Couples money script

Let’s now pause and check in. Do these categories, the good and the limiting parts resonate with you? This becomes more relevant when we marry or live with someone. Two people who look at money very differently without themselves being conscious of it can cause tremendous mayhem. No wonder study after study lists money as the top cause for breakups. In today’s episode, we won’t get into money between couples, that’s a topic by itself but we will say this. The most self-destructive financial behaviours make perfect sense when one understands who our partner views money and how we view money. 

Bottomline

In summary, understanding our relationship with money can be a very complicated process, but it’s a worthwhile one. But research has shown that taking time to do this, you can develop a deeper understanding of yourself, what money means to you, and mindfully work towards having a happy and healthy relationship with money. 

Action steps

In terms of action steps, here are a few things you can consider. What’s a powerful memory of money in your early years? Where were you? What were you doing? How’s it affected you? Which of the four money script categories do you identify with? Reflect on What's working for you? What's holding you back? And how can you make it more healthy? 

End

Best of luck. Let me know what you think about this. You can hit me up on howtolive.life/contact. In the next episode we look at re-inventing ourselves. This is very relevant as people are in and out of the workforce. Doing different projects. Making big life changes. Just Trying to connect the dots. We have a very special guest who’s successfully reinvented herself many times, and helped others do the same. This episode drops on December 6. Hope you join me. Till next time. Bye bye