Knowing Your Financial Personality
Can Help You Find The Right Financial Advisor For You
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By Kathleen Gurney, Ph.D.
CEO, Financial Psychology Corporation
> SUCCESSFUL INVESTING BEGINS WITH YOU
> I WAS MY FIRST CLIENT
> DETERMINING YOUR MONEY STYLE
Your financial personality is the most important thing for you to know, before you attempt to develop a financial plan or an investment strategy, or choose an advisor. Why hire a financial planner or advisor? To help you meet your financial goals, whether those goals are for a secure retirement, a college education for you or your children, buying a house or some other goal that is important to you. Once you have agreed on a financial plan, following the plan will determine whether your goals are met. That's where your financial personality comes in to play. Your personality plays such an important role in determining your goals and how you use and manage your money, that you must know your financial personality, and be in control of it, to reap the rewards of your financial plan and reach your financial goals. Otherwise you may fall short of your goals.
Goals are mental representations of who we want to be, what we are emotionally committed to, and what we do. We have short-term goals, goals that change as we change, and goals that define our purpose and meaning in life, broad life goals. People who reach these broad life goals usually experience less emotional distress, greater well being, more mental wealth and greater physical health than those who do not.
SUCCESSFUL INVESTING BEGINS WITH YOU
I have looked at what we can do to sustain productive and more rewarding financial behaviors or encourage and sustain changes in maladaptive behavior like running up large credit card balances and living beyond our means. I have become more and more convinced that the work that people must do to have financial success they desire is internal work. You must deal with your feelings, thoughts and perceptions of the events in your life and how you react to those events as a result, i.e. your sense of mastery over your behavior. People who believe they have a sense of control and can be successful in achieving their life's goals and purpose, will attempt to master their behavior and sustain that sense of mastery. They will also master the resources of time and money. As a result, their chances of successfully meeting their goals are excellent.
That is why my work is focused on enhancing people's sense of mastery so they are more effective in maintaining the desirable behavior they seek. I have found that people are more likely to maintain the desired change in their financial behavior, and behavior in general, if they attribute it to their own efforts rather than to an external factor, such as money, a financial advisor or an agent of some kind. Providing people with a sense of internal control, by helping them to know and understand their financial personality, how they manage money and what it means to them, has been the driving force behind my work.
Framing the context of how money is presented and how people connect to it has been another extremely important aspect of my work. A financial plan, a recommended portfolio or asset allocation can be framed around you, taking both your financial and psychological needs in mind. It has been my experience that if money management is framed to match an individual's style of motivation and thinking, more people would be motivated to continue with desirable programs of change and benefit tremendously from the positive results. This has certainly been our experience with financial advisers and institutions that use our programs and services, as well as with individuals.
I WAS MY FIRST CLIENT
My pioneering work in the psychology of money dates back to the fall of 1981 when I became my first client. For years I had invested all of my money in real estate and had no liquidity for any emergencies. After taking a number of financial courses, I was ready to diversify my investments and sought out an investment adviser with a major financial institution. Throughout my first meeting with him, I felt he was quick to persuade me to buy the products he was selling. I walked away certain that he really didn't understand how I felt about my money and didn't know me well enough to understand what I really needed? The kind of investments that would not only reap profits but would leave me content, secure and comfortable. Of course, I didn't know what to tell him either. In retrospect, I realized my discomfort was due to the fact that he had not really taken the time to get to know me? What I was all about, what investments would give me peace of mind. He was not able to match my money style with suitable investments because he did not have a tool that enabled him to understand my money style or give me insight into my true needs. So I set about developing a way for people to become better clients in objectively understanding their true needs, meet their comfort level and invest wisely at the same time. I also wanted to provide advisers with the same objective information to facilitate the most suitable plan or strategy. I developed the Moneymax® Profile and have licensed its use for the past 14 years.
DETERMINING YOUR MONEY STYLE
Before you can begin to understand how to use money, what it is, or how it works, you've got to know where you are in relation to money. What are your attitudes, good or bad, right or wrong, toward money? How are you using money now? What fears and insecurities do you have about money? In what ways do you handle money well?
You have developed a money style just as you have developed a style of interacting socially and a style of thinking and learning. Your money style defines the amount of money you will continue to make until you change your patterns. Whenever you learn a new process, you have to determine your current skill level. After you become aware of your present behavior and thinking patterns about money, you can then begin to develop a new money management strategy.
RISK IS JUST PART OF WHAT YOU NEED TO KNOW
Most people think of risk tolerance when they think of matching personality characteristics to investments. An 'I can't stand taking big chances" might lead to an investment portfolio of high-grade municipal and corporate bonds and government securities. If, however, this risk-avoider winds up with a portfolio of stock in emerging growth companies, commodity futures contracts, and similar speculative investments, all he or she has bought is a period of sleepless nights and nail-biting days, or worse, no matter how much profit is made.
Investing is the process of giving up something now in order to receive something (preferably more) in the future. Taking risks in investments refers to giving up something known now without always being certain of what your return will be in the future. The possibility exists that what you get will be less than your investment and more or less than what you expect. Your risk tolerance is your ability to make decisions, trading the known for the unknown, and to be comfortable with the decision once it is made.
But risk tolerance is only one of the financial traits you need to consider before you can create an investment portfolio that will make you feel comfortable. There are other traits, which have been examined in my book, "Your Money Personality, What It Is and How You Can Profit From It," that also need to be considered when matching your investments and money management style to your financial personality. The kinds of investments you'll feel comfortable with will depend on the dominance and configuration of your personal financial traits.
REPROGRAMMING YOUR MONEY STYLE
Before you can learn to manage money successfully, you need to reprogram your money life so that you can gain insight into how you can make life pay off for you. You need to get control - alter your thinking and behavior patterns so that you are aligned emotionally and intellectually with the attitudes and behaviors that lead to financial gain. Getting the most out of your money depends entirely on you - who you are, what you want and how far you are from where you want to be.
It is important to take a hard look at how you perceive money. Successful investors are usually in control of their emotions and make decisions based on facts, and the sense they make of their feelings. Psychological research tells us that behavior shapes attitudes, just as attitudes shape behavior. If your behaviors are positive and productive, then your attitudes will be positive. Positive attitudes will, in turn, affect further productive behavior. Obviously, negative and counterproductive attitudes and behavior also follow the same cycle. When it comes to money, investing is an interaction between an individual and their money. So, you can't leave you, the individual, out of the equation. Make a plan that you have fully bought into, psychologically as well as financially, in order to maintain the plan through difficult emotional times. If you do this, you increase your chances of successfully meeting your goals and enjoying the ride.
So whether you chose to hire a financial planner or advisor, or "go it alone," knowing your financial personality can make all the difference between achieving the financial success you desire or feeling out of control of your financial destiny. Your financial future is in your hands.
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