How to take the stress out of money management

How to take the stress out of money management


I’ve discussed the idea of saving money with a goal in mind before. I made the case that adopting this approach, and not the approach of saving money for no apparent reason, leads to much more positive results in actually being able to keep money for longer in your savings account. The reason saving is made easier using the goal-oriented approach is that it makes saving money not feel like a chore.

Today I want to achieve a slightly similar goal of making saving your money or managing your money in general feel less like a punishment and more like an enjoyable and rewarding experience. Money management has a relationship with psychology and it’s that relationship that drives how we act towards and think about money. Let’s dive in.

So, what is money management?

Money management, simply put, is how you handle your money. It includes activities like tracking your spending (expenses), budgeting, investing, and saving your money. Usually what you’re trying to do managing money is to make sure it earns the highest interest for the amount spent (the bang for your buck, as Simon would say). Basically, if you spend “X amount” on something, saving for example, you want to make sure you get the highest “Y amount” back from the money you spent.

When people talk about the subject of money management, they often advocate for frugality. This means that they encourage a person to spend their money on only the things that the person needs (this involves cutting down on many unnecessary expenses) and maximize the amount of money put into saving and investing. Frugality works, honestly. It’s just difficult to implement for a lot of people. This is because different people have different psychological traits which leads to different types of approaches being the best approach for other people. More can be said about how people’s psychology influences their money management though.

The link between money management and psychology

The unique psychological makeup of an individual might be crucial when it comes to their finances, more specifically, how the person sees, handles, and manages their money. For example, a person who is frugal – meaning that the person does not like to spend a lot of money – has a different psychological makeup from a person who spends their money a bit more freely. This difference in psychological makeup between people will result in them not only seeing money differently but managing it differently too.

The reason it is important to understand this point of different psychological makeups of individuals, and its effect on the way each person manages and views money, is because when an individual chooses an outlook on money that is not in line with their psychological makeup or when an individual chooses a money management approach that is not in line with their natural habits and tendencies, they could run the risk of making the experience of saving, budgeting, and investing all the more tedious and difficult for themselves. This defeats the point of making managing your money fun. On the other hand, if our money management and money outlook is in line with our psychological makeup – then saving, investing, and all the other aspects of money management become more fun and enjoyable. After all, it is well known that swimming with the tide is always an advantageous approach to get us where we want to go quicker.

Having explained how aspects of money management and the psychology of a person are related, I will now share below the non-frugal approach I have adopted when it comes to my money.

My personal money management approach

The discussion around my money management will revolve around the following areas: budgeting, saving, and investing.

1. Budgeting: Budgeting is a process that involves tracking your income and expenses. How budgeting is normally done is that a person writes up the different items they are going to spend their money on for a given period, say a month, and match these expenses against any income expected to be received.

A person who is frugal will write up a specific list of what they are going to spend their money on – down to the last cent – and since this kind of person usually has a lot of self-control, they will stick to this list. Then there’s me! Generally, I’m an unstructured person. This means that I don’t have it within me to think about the tiniest of details and so I fail to budget the same way a miser would. How I then approach my budgeting is that I use what I call “category budgeting.”

In category budgeting, instead of me writing down every single item I am going to spend my money on for the next month, I instead write up general categories. The categories I spend my money on are investing (short-term and long-term), saving (short-, medium-, and long-term), and life money (this is money I spend for daily needs and wants).

2. Investing: Investing is simply the process of buying assets. Assets give you money in several different ways, including interest and dividends. With investing, you’re basically allowing your money to make money babies.

When it comes to investing, my unstructured personality trait and my occasionally impulsive spending play a huge role. Since I know that when it comes to investing I sometimes get impulses to make rash purchases – for instance, when I’m certain that a stock that I hadn’t initially planned to buy is going to increase in value – I separated my investing into two categories: short-term and long-term investing. The long-term investment account is created out of the necessity to build long-term wealth, whilst the short-term investment account is created to go around the purchase impulses that I keep stumbling upon.

3. Saving: Saving, slightly similar to investing, is the process of putting money away with your bank so that it can earn interest. What makes saving different from investing is that with saving you are not necessarily buying assets. What you are simply doing is giving your bank, or whichever financial institution, the right to use the money you saved with them to service other customers. The money you saved, for example, can be used to finance loans to other customers that are banking with the same financial institution as you. For this ability you give to the bank, and the fact that you are not using your money for the duration it is saved up, the bank pays you interest on the money saved.

When it comes to the way I approach managing my savings relative to my personality trait, the major influential personality trait I think of in this regard is my need to limit my downside. Although I am unstructured in my life approach, I always keep in mind the various risks I am faced with, including financial risks. And so, my savings account acts as a buffer for me to deal with these financial risks in a sustainable manner.

So, there you go. That is the way I have linked my personal tendencies and habits with the way I manage my money. And throughout the entire process, I have never felt like I am being forced to do anything with my money nor have I felt any inconvenience when I either spend my money or when I put it away, and this is the way I think money management should feel and be like.

The wrap it up

The simple point that I am trying to make is that as an individual it is important to first evaluate your psychological habits before deciding on the approach you are going to use in evaluating your money. If you are able to do this well, I strongly believe investing, saving, and other aspects of managing your money will become all the more enjoyable. You won’t have to change who you are to build your wealth as an individual, and that is the most important factor of all.


This article was written by Karabo Manasoe.

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