1. Spenders / Shoppers
These personalities derive great emotional satisfaction from spending money. They need instant gratification and can't resist spending money. Spenders often shop to entertain themselves, even if the items they buy go unused. A sale is simply an excuse to spend money on the pretext of getting a good deal on things that they do not need at the moment.
A well-to-do good friend of mine was shocked to discover, during his house moving, that his wife owned more than 100 pairs of shoes and over 30 handbags! Like most guys, he couldn’t see the need for his wife to own so many pairs of shoes and handbags. As money was not an issue, he didn’t mind his wife buying more new shoes or handbags, provided that she gave her old ones away. He was concerned that his new house was quickly running out of closet space to store the things his wife bought.
Unfortunately, besides being a shopper, his wife was also a hoarder. She didn’t have the heart to give away things that are still fairly new and seldom used. This led to frequent quarrels and my friend decided that the only way out was to build more closet space in his current house and to move to a bigger house a few years later to accommodate his wife’s impulsive shopping habit. It was a small price that he could afford to pay to keep his wife happy.
| Advice for Spenders/ Shoppers: Shop a lot less, save a lot more |
If you love to spend, it's very likely that you are going to continue doing it. when shopping, try to seek long term value, not just short -term satisfaction. Before purchasing, ask yourself how much that purchase is going to mean in a year. If the answer is "not much",then forgo the purchase. This way, you can limit your spending to things that you'll actually use. If possible, set a monthly budget and stick to it. In case you over-spend in a month, make sure that you have the discipline to cut back the following month.
Another suggestion is to cut up any extra credit cards you may have and lower the credit limit on the ones you use regularly. Give standing instructions to auto-debit your bank account on the due date with the full amount for all your credit cards. This way you will not be tempted to overspend.
Debtors are similar to Spenders/Shoppers. The only difference is that they are spending money that they don’t have and are living beyond their means. They are deeply in debt and often, are not in a position to do much investing. Debtors will typically live rich but die poor!
A newly married young couple in their late twenties came to see me for a personal financial consultation. They were keen on investing in properties and stocks. Their combined gross income was RM15,000 per month but their net worth was less than RM100,000! They had RM20,000 in credit card debts, less than RM5,000 in savings and they both drive brand new Japanese cars worth around RM70,000 each. Their logic of purchasing new cars was that they didn’t want any problems associated with buying cheaper second-hand cars.
In my opinion, both fell into the Debtor personality. While they were earning well for their age bracket, they were mismanaging their money by accumulating credit card debts and over-spending. Since both were desk-bound employees, there was no need for them to make a good impression by driving new cars. In fact, they could ill-afford to drive new cars at this stage of their lives, given their current financial situation.
In order to clear up the credit card debts and begin their investment journey, I strongly suggested that they sell off their two cars which were around a year old and downgrade to a three year old Proton or Perodua car which costs around RM35,000 each. Straight away, they would be able to settle their credit cards debts and have sufficient start-up capital of around RM50,000 to begin investing.
Unfortunately, it was easier said than done. Towards the end of our consultation, the husband blurted out that they had just placed a deposit for a new car for himself worth RM85,000 to lock-in the low interest rates. Since both had the Debtor personality, I really had a tough time convincing them to change their spending habits. If one of them had a different money personality, perhaps I would have an easier time to get one spouse to convince and force the other to change his/her ways. Finally, all I could do was wish them good luck. Personally, there is no way they will go far in life unless they make drastic changes to their behaviour
| Advice for Debtors: Start saving, investing & don't spend money that you don't have! |
If you are already in debt, you first need to get your debts sorted out before you can begin investing. If you are not be able to do it alone, get some professional financial help like what the couple did when they saw me.
Also, analyse what caused you to get into trouble. If it was easy access to credit cards, then the solution would be to cut up all "temptations" cards and sticks to debit cards. If spending was something that you used to compensate for other areas in your life that you feel were lacking, think about what these might be and work on changing them. If your house and cars were purchased because of the need to look good, then you may even need to downgrade your lifestyles by moving to a smaller house, drive an older car, etc.
Next, focus your efforts on saving money diligently. Pay yourself first by setting aside a certain portion of your take-home income that automatically goes into a special bank account that is used for investments. The money in this account can never be spend - it is your golden goose. Later, when you retire, you can only spend the eggs that your golden goose laid i.e whatever interest, dividend or rental incomethat your investments generated.
Savers are the exact opposite of Spenders/Shoppers and Debtors. They only shop when absolutely necessary and never accumulate credit cards debts. They generally have no debts and are often viewed as cheapskates. Savers are not concerned about keeping up with the Joneses or following the latest trends. They are happy with their 20-year-old cars and derive great satisfaction from seeing the interest earned on their bank statements. Due to their conservative nature, they don't take big risks with their investments. They prefer fixed deposits instead of other riskier investments where there is a possibility of a loss.
Extreme Savers unfortunately will live poor but die rich! Most of our parents who had lived through the Second World War and experienced hard times, where they didn’t have the luxury of three meals a day, will fall into this money personality type. I met many people who live in old houses that were last renovated 20 years ago and drive well-maintained cars that are more than 15 years old. These people are the ones who have more than RM5 million in fixed deposits! At the current fixed deposit rate of 2.5% p.a., their interest income alone is over RM10,000 per month which is more than sufficient to fund their no-frills lifestyle.
| Advice for Savers: Practice moderation & take a little more investment risk |
If you are a Saver, you should not let all the fun parts of life pass by just to save a few cents. To achieve some sort of balance, it's advisable that you allocate a small sum of "Play Money" where you can nourish your inner child by living like a King/Queen for a few hours every month. Spending a bit of money on having fun isn't going to make you bankrupt. Once you have tasted the good life, would you want more? The answer is a definite 'Yes'. In fact, you would be motivated to challenge yourself to make more money so that you can have more of the good life.
Instead of taking little or no investment risk by leaving all your money in fixed deposits, you need to learn to take a little more risk by investing a portion of your capital into higher return investments such as REITs, properties, bond funds, etc. After all, the key to investing success is to minimise risks while maximising returns. Avoiding investments risks completely will not get you far in the long run.
4. The Avoiders / Money Monks
These people are not comfortable with the subject of money due to their lack of interest or they feel that that are other more important issues. Often, they will try their level best to avoid the subject completely. Money Monks are happy-go-lucky types who strongly belief that God will take care of them. At the extreme end, they may not even know whether they are rich or broke.
If you are married to an Avoider or a Money Monk, you will have to shoulder the responsibility of managing money and investing for your family. The big advantage is that you will have little or no arguments on any money matters with them.
| Advice for Avoiders/Money Monks: Make sure that you do not marry your own kind. Alternatively, find a trusted professional financial planner. |
It's a sad fact that people typically will not change even when they know they need to. Hence, it is extremely tough to suggest to Avoiders and Money Monk that they should have an interest in knowing how money works. If you are an Avoider or Money Monk, an easier alternative is to make sure you don't marry their own kinds or you should seek professional help when it comes to managing your money.
Investors are consciously aware of how money works. They know where they are financially today and try to put as much of their money to work. All investors tend to seek a day when their passive income from their investments will provide sufficient income to cover all their expenses. Their actions are driven by careful decision making, and they are comfortable with the need to take a certain amount of risk in pursuit of their goals
| Advice for Investors: Keep it up! |
Congratulations! Financially speaking, you are on the right path and doing great! Keep doing what you are doing, and continue to educate yourself.