Does Money make us happy? The obvious answer to this is “no.” There are plenty of examples of people who have had lots of it and yet been miserable. However, the flip side of the argument is that a lack of it – or difficulties with it – can make life very difficult. So, where does money fit in terms of our overall state of happiness in life and how can you achieve financial well-being?

The psychology of money

Looking deeply into the psychology of money tends to reveal that we’re all very different when it comes to how we cope with our cash. However, there are some general themes and personality types that can provide some helpful insight into the ways that we think about money. For example, many of us find delaying gratification very difficult but it can mean better results in the long run. A famous 1960s test – the Stanford marshmallow experiment – gave children the choice of eating a marshmallow straight away or waiting and getting two as a reward for delaying gratification. The children who were able to wait had better life outcomes in follow up studies. However, it’s difficult to wait, especially as we live in an era when everything is instantly available. Spending hits all the pleasure zones in the brain – saving does not – and, as many of us have trouble visualising our future selves, saving feels like giving money to a stranger!

The financial personality types

Sometimes, getting to grips with the psychology of money can be assisted by working out whether you fall into a specific financial personality type. For example:

• The Hoarder – a cash saver who is to fearful of letting go of money saved to invest. Would benefit from releasing some cash to invest it and generate more.
• The Social Value Spender – spending money generates warm and fuzzy feelings for this person, as well as gratitude from others. It’s important to stop impulse spending and keep an eye on debts if this is you.
• The Cash Splasher – using money to make people think more highly of them, Cash Splashers will benefit from finding other ways to achieve contentment and cement relationships.
• The Ostrich – avoiding bills, refusing to talk about debts and just wishing it would all go away. This personality type benefits from facing up to things and getting organised but taking small steps to get there.

The objectives of financial well-being

Whatever Financial personality type you might fall into there are many different ways to define financial well-being. Some, for example, would focus on low debt and high net worth as being the ideal combination of factors to achieve it. The US Consumer Financial Protection Bureau defines it as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow enjoyment of life.” It might mean something subtly different to everyone but, overall, it’s generally being able to use the money you have to enjoy your life and not having to worry too much about a lack of it. Whatever it means to you, most people’s financial well-being objectives will include:

• Being able to absorb a life event that causes a financial shock
• Being in control of budgets and finances, daily, weekly and monthly
• Having a degree of financial freedom so you can make choices
• Being able to set financial goals and move towards them

Taking steps towards financial well-being

• Start saving. In 2017, Brits struggled to save even 4.6% of their income and yet this is one of the fastest routes to a sense of Financial Wellbeing and well worth doing.
• Change your mindset. Start viewing saving as a gift to your future self and/or future family, as opposed to giving money to a stranger.
• Review what goes out of your account already. One in eight people are currently paying for subscriptions they don’t use, for example.
• Use savings tools. There are lots of different tools out there to help you track your saving and spending, and visualise your progress.
• Get organised with your important payments. Make sure these leave your account as soon as you’ve been paid. That way you’ll know how much of your cash is left to spend.
• Be firm about saving. Set up a standing order that leaves your account for a separate savings account at the same time as all other important payments.
• Shop around for the best deals. Find the lowest costs and highest savings rates to make the most of the cash that you have.

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