We often stress about the importance of financial literacy, such as gaining a strong understanding of how money works and having the resources to make informed decisions.
But when it comes to establishing financial health, one thing most people fail to consider is their money personality type — or their approach and emotional responses to money.
We each have our own beliefs and emotions about money, and they are mostly shaped by our individual life experiences (e.g., passed down from our parents or influenced by our current situations).
In my 10-plus years of researching the psychology of money and happiness, I've found that there are seven distinct money personality types. Typically, we fall into a combination of many types, and not just one.
Identifying which types you fall under, and understanding the pitfalls of each, can significantly improve your relationship with money. It can help you do things like spend less on impulse purchases, be better about budgeting, invest wisely and ensure a nice nest egg for retirement.
1. The Compulsive Saver
Signs you might be a Compulsive Saver:
- You put away money endlessly, sometimes with no actual end goal in mind.
- You believe saving money is the only way to feel more secure in life.
- You're very frugal. (Friends will often come to you for advice on which phone company is the cheapest, which point cards are worth it, or when to buy plane tickets at the lowest price.)
Pitfalls: Some Compulsive Savers are so afraid of losing money that they go their entire lives without spending any of what they worked so hard to save. For example, they might choose to skip out on hobbies or activities that could bring them happiness and purpose.
Money advice: It's all about moderation; learn to find a balance between saving money and enjoying life. Think about where you see yourself in the future and how you can use your savings to get there.
2. The Compulsive Spender
Signs you might be a Compulsive Spender:
- You tend to spend money on things you don't necessarily need.
- You have an outgoing personality and love treating people to something special, sometimes for no particular reason.
- When you're in emotional distress, your solution is to spend, especially for immediate gratification.
Pitfalls: Even if they have large amounts of debt, Compulsive Spenders will often continue going on shopping sprees. They may even try to hide large purchases from friends and family. In extreme cases, they can be at risk of going bankrupt if they consistently spend more than they earn.
Money advice: Creating a budget plan will help you see things from a different perspective. Remind yourself that buying a new car (when you already have one), for example, means sacrificing money on essential things like saving for retirement or paying off debt.
3. The Compulsive Moneymaker
Signs you might be a Compulsive Moneymaker:
- You believe that earning more money is the secret to happiness.
- You spend most of your energy on trying to make as much money as possible.
- You get pleasure from the approval and recognition from other people for your financial success.
Pitfalls: While Compulsive Moneymakers are usually on a strong path to achieving financial freedom, they can enter dangerous territory if they start neglecting important relationships to prioritize growing their wealth (e.g., choosing to work on weekends over spending time with loved ones).
Money advice: Recognize that there's more to life than money. And if you do have a sizeable amount of wealth, give it purpose by helping others, whether that means donating to an important cause or treating yourself to that family vacation you've been talking about for years.
4. The Indifferent-to-Money
Signs you might be an Indifferent-to-Money:
- You rarely think about money (and just the idea of creating a budget makes you nauseous).
- In extreme cases, you believe that money is inheritably bad or evil.
- You feel strongly that money shouldn't influence important decisions in life.
Pitfalls: Many people who are indifferent to money feel they only need a modest amount of money to be happy, which is a healthy mindset. But things can get ugly if they're not responsible with their finances (e.g. depending on a partner or spouse to do the work for them).
Money advice: Even if you are financially comfortable, make it a point to know things like where your money is going, what your monthly expenses are, and where you stand on debt. Doing all these things can save you a lot of financial stress in the future.
5. The Saver-Splurger
Signs you might be a Saver-Splurger:
- You share common traits between Savers and Spenders.
- You start out saving a lot of money, but then give into spending impulses out of nowhere.
- When you do use your savings, you might spend on things you don't need or will rarely use.
Pitfalls: It can be emotionally exhausting when the pendulum swings from compulsive saving to compulsive splurging. Saver-Spenders often end up stressed and disappointed in themselves for working so hard to save money, only to lose it so quickly.
Money advice: Like Compulsive Spenders, Saver-Splurgers rarely put thought into what they're spending on when they decide to splurge. Before any big purchase, imagine how you might feel the following week or two. Don't lose sight of your financial goals.
6. The Gambler
Signs you might be a Gambler:
- You share common traits between Moneymakers and Spenders.
- The thrill of risk and promise of reward is a pleasure unto itself that you can quickly get lost in.
- You gamble away your money sometimes for the purpose of escaping boredom.
Pitfalls: It's not unusual for Gamblers to encounter sudden windfalls or devastating losses. The most obvious risk is when the gambling gets out of control and they borrow against things like their retirement money or children's college fund to make up for losses along the way.
Money advice: The goal is to be introspective and strict with the financial risks you take. Balance and security are essential to have, so start setting aside monthly savings before making any big financial decisions.
7. The Worrier
Signs you might be a Worrier:
- It doesn't matter how much money you have — you're constantly worried that you'll lose it at any given moment.
- You lack confidence in your abilities to achieve financial freedom.
- You constantly obsess over the worst case scenario of what will happen if you run out of money.
Pitfalls: It's smart to be aware of what could happen if you don't prepare for your future. But letting worry and anxiety eat away at your happiness in the present moment is never a good thing.
Money advice: Seek positivity around money conversations. Work on understanding where your financial worries are coming from, whether that means talking to a financial advisor or a therapist.
Ken Honda is an expert in the psychology of money and happiness, and the bestselling author of "Happy Money: The Japanese Art of Making Peace With Your Money." He has owned and managed businesses, including an accounting company, consulting firm and VC corporation. Ken currently lives in Tokyo, Japan.