The Psychology of Money: Taking a Rational Approach to Managing Your Wealth

Thank you for reading the Women and Money - Let's Talk About It! Newsletter, a series that shares strategies to help you feel more confident and empowered with your finances.

In this newsletter, we will discuss how our internal biases, emotions and perceptions impact our views on money and the financial decisions we make. We will also discuss tips to improve your relationship with money and make more objective and intentional decisions moving forward. If you know someone who would benefit from this newsletter, please feel free to share it with them!

The Psychology of Money: Taking a Rational Approach to Managing Your Wealth

Wealth is a complex concept, and the perceptions, biases and emotions you have around money can affect the financial decisions you make. Understanding these dynamics and developing strategies for making objective decisions about money can help you manage your wealth more wisely.

Understanding Your Feelings about Money

Exploring your relationship with money—what it means to you and what you hope to accomplish with it—can help you focus on managing your wealth to achieve your goals.

Your feelings, beliefs and attitudes toward money may be influenced by many factors, including how your parents handled money and your education. They can also be shaped by your conceptions or misconceptions about money. For example, “You need money to make money” or “I can’t be financially successful because my parents weren’t.”

You may not realize it, but your emotions can have a powerful impact on your spending. If you’re feeling sad, buying things can make you feel better, at least temporarily. Or, if you’re angry, you make take bigger risks or make less rational decisions. There may even be occasions where feelings of guilt may cause you to try to make up for mistakes by spending money.

Taking stock of your feelings about money—and how they affect your spending—is an important first step to not only making more rational, informed financial decisions, but also imparting good money habits to your children.

Changing the Way You Think, Feel and Act about Money

Here are three tips for improving your relationship with money:

1. Learn to differentiate between wants and needs.

Recognizing the difference between what you want and what you need can help you keep your spending aligned with your current financial situation, as well as your overall financial objectives and goals. Every buying decision you make affects your ability to achieve financial security.

1. Talk to your family.

Having meaningful family conversations about money is an essential part of any family wealth management strategy, especially as an increasing number of families are sandwiched in the role of caring for both their children and their parents.

Talking about money can be an empowering first step to forming a healthy relationship with wealth, and families that succeed in having effective discussions about money are better equipped to find ways to use their financial capital to leverage the value of their family, intellectual and social capital. You might start by talking about what money means to you, why you’ve worked hard to acquire it, what responsibilities come along with it and what your family hopes to achieve with it.

3. Identify your goals and set realistic expectations.

Defining your goals, and then developing a wealth management strategy that aligns with those goals, is another way of changing the way you think about money. Setting goals and tracking your progress over time also helps you set realistic expectations about your financial future. And, keeping sight of your long-term vision through the ups and downs of the markets and the highs and lows of life can help you stay the course.

Money can enhance your life, but it can be detrimental if your world revolves around it. The key to long-term wealth is finding the balance.?If you need help getting started, a Financial Advisor can help facilitate family conversations about money and help you make informed, rational decisions about your wealth.

Disclosures

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Elizabeth Dreyer is a Financial Advisor in Cincinnati, Ohio at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). She can be reached by email at?[email protected] ?or by telephone at 513-852-4457.?Her website is?https://advisor.morganstanley.com/elizabeth.dreyer .

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Elizabeth Dreyer may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where she is registered or excluded or exempted from registration,?https://advisor.morganstanley.com/elizabeth.dreyer .

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