Do you wait for that paycheque because you have run out of money much before the end of the month? Or do you love the sound of money so much that you refuse to spend on anything? Money habits are formed very early in life. In fact, these habits are often determined by how your parents bring you up. So, each one of us has a money personality since our childhood days. This might change over the course of the years based on what we learn from others and what we learn from our own experiences. So, what is your money personality now?
Take this quiz to find out.
Done? Already? So, which one are you?
The Personalities
There are essentially four types of money personalities.
The Money Monk
- Money is holy for these Monks – they hardly touch their cash.
- Another name – Scrooge!
- You look for ways to avoid spending money on anything other than your passions.
- Usually, Money Monks have either deep political or religious views, adopted early in life, which prevents them from spending money freely.
- You never take risks with your money.
- So, Money Monks almost never invest in financial products that beat inflation in the long term.
WHAT SHOULD YOU DO?
- Wake up! Spending money isn’t such a bad thing, especially if it will help you in the long run. Buying a house, for instance.
- By keeping your cash in your savings account, you are actually losing money. If inflation is at 7%, you are losing 3% of your money every year if you keep it in your savings account.
- Try investment avenues such as Debt Mutual Funds. These are much more efficient than your Fixed Deposits (FD).
The Hoarder
- You are like the ant that saves for the rainy days.
- You take calculated risks that help you save as much money as possible.
- Hoarders keep looking for opportunities to save money.
- Most Hoarders have a budget in place, or at least mentally stop themselves when they are about to go overboard with their indulgences.
- But Hoarders often fear losing money and don’t take high risks.
WHAT SHOULD YOU DO?
- Stop looking at how much you saved. Start looking at how you earned by investing.
- So, retain your saving habit but make sure you invest the money saved in the right avenues.
- Already got a Fixed Deposit? Try investing in Mutual Funds. Start with Debt Mutual Funds and then shift to Equity Funds.
- You can, of course, save the interest/income from these investments like you always do!
The Spender
- You love shopping!
- Your inner voice often says, “I deserve this!”
- Saving is there on your mind, but you feel you can reserve it for later.
- Prioritising is definitely not in your dictionary – ‘Should I buy this or that?’, but you end up buying all of it.
WHAT SHOULD YOU DO?
- Start a purchase calendar – If you write down all that you purchase, at one point of time, the list will get so big that you will stop shopping just so you needn’t write it down. *Wink*
- Cut back on your Credit Card spending – As you know, late payment of Credit Card bills and piling up of the outstanding balance on your Credit Card can affect your Credit Score. Get your Credit Score, write it in bold, take a print-out and stick it inside your wardrobe. An even better thing to do is to keep it in your wallet along with your Credit Card so that you are reminded of your score every time you shop.
- Start a Recurring Deposit first with a small amount and keep stepping it up until you have no money left to shop.
- If you manage to save some money, start investing. The sooner, the better.
The Avoider
- It is a surprise that you are reading this given that you hate anything that has to do with ‘financial advice’ or ‘spending too much’!
- You hate it when someone says you spend excessively on unwanted stuff.
- When growing old seems far away, why would you think about retirement?
- ‘Investment’, ‘savings’, ‘financial security’ are alien words to you.
- You hate making financial decisions and always depend on someone else.
WHAT SHOULD YOU DO?
- Start putting money in your savings account – Why not start with having Rs. 100 in your savings account by the end of the month? Then you can go on to Rs. 200, Rs. 300 and maybe Rs. 2000 (Yeah. It’s possible!)
- Keep a monthly saving target and keep increasing it as you go along.
- Once you have your savings set, link them to short-term goals – For instance, as soon as you save enough money (an amount YOU think is enough), create a goal like starting an FD. Once you achieve these small goals, you would have trained yourself (and maybe, just maybe, found how rewarding it is to save), and will be ready to save for those big goals.
WHICH ONES LIKE TO INVEST?
- SPENDER – These types are more open to taking risks with their investments. So if someone says Mutual Funds give great returns, Spenders are more likely to jump on the bandwagon when compared to those of other money types.
- HOARDER – These people like to stick to conservative investments. They are afraid that by taking high risks, they might lose money.
WHICH INVESTMENTS APPEAL TO WHICH TYPE?
- MONEY MONK – FDs
- HOARDER – FDs, Debt Mutual Funds
- SPENDER – Equity Mutual Funds, Stocks, Gold
- AVOIDER – Gold in the form of jewellery. (Note that gold in the form of jewellery is not actually an investment, as jewellery includes making charges and wastage which reduces its resale value)
MUST HAVE INVESTMENTS
- FDs – This is like ABC for Kindergarten students. Everybody starts their financial foundation by opening an FD. There are different types like special FD (special tenure with higher interest rate), tax-saver FD (save tax by holding it for 5 years) and auto-sweep FD (link your savings account to your FD to encash it at any time).
- Mutual Funds – Debt and Equity – While the former Funds invest in the debt market (Government securities, corporate bonds et al), the latter invests in stocks. Start with Debt Mutual Funds and gradually progress to Equity Mutual Funds. You can even save tax by investing in ELSS Mutual Funds.
- Gold in the form of bars/coins – Why not start a Systematic Investment Plan
(SIP) in gold? Start by buying a gram a month or two grams once in two months. As you grow in your career, you can step up the investments. This method will help average out the volatility in gold prices as you invest at various price points. - Real Estate – This is one of the best investments given that land is an exhaustible asset and the Indian population is ever-growing (the average age of an Indian today is 26. Imagine how many houses will be needed in the coming years!) You can even get rental income from the property in your golden years. But you need to hold the asset for the long run to reap good returns.
HOW TO MAKE MORE MONEY
- Replace cash with mobile wallets – Most mobile wallets are accepted at any of the merchant outlets including grocery stores. In fact, some mobile wallets provide you with a card that can be swiped at stores. And the best part is that wallets give you cash back! So, why not use wallets instead of using cash? You will get a part of the money spent, right back!
- Invest in Debt Mutual Funds instead of FDs – FDs are taxed at the highest rate – that’s the tax slab that you fall into. But Debt Mutual Funds give you indexation benefits if you hold them for three years. Indexation helps reduce the capital-gains tax on these Mutual Funds by over 50%! Smart move, right?
- Invest directly in Mutual Funds – By investing in Mutual Funds through an agent, you are actually losing because your investment will be reduced by the amount of commission that the agent gets. This is why you must invest in Mutual Funds directly, that is, through the Mutual Fund house. Lower costs =Higher returns. Now, how cool is that?
Once you understand your money personality, it will be easy to see how that hole in your pocket appeared. You can easily fix that hole by making a few quick stitches like we have mentioned. The secret is to do everything right but still be ‘you’. We all have our grey sides, but the smart ones don’t let it affect their finances. Are you smart enough?