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

By: Jan Paul C. Ferrer

 

Wealth is a complex concept, and the myriad perceptions, biases and emotions you have around money can affect the fi nancial 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 infl uenced 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 fi nancially 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 fi rst step to not only making more rational, informed fi nancial 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 fi nancial situation, as well as your overall fi nancial objectives and goals. Every buying decision you make affects your ability to achieve fi nancial security.

2. 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 fi rst step to forming a healthy relationship with wealth, and families that succeed in having effective discussions about money are better equipped to fi nd ways to use their fi nancial 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.

Defi ning 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 fi nancial 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 fi nding 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.

Important Disclosures:

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

Jan Paul C. Ferrer is a Financial Advisor in Chicago, IL at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). He can be reached by email at janpaul.ferrer@ morganstanley.com or by telephone at 312 312-419-3535. https://advisor. morganstanley.com/janpaul.ferrer

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 fi nancial 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.

Jan Paul C. Ferrer.may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where [he/she] is registered or excluded or exempted from registration, https://advisor.morganstanley. com/janpaul.ferrer

© 2022 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 4655627 04/2022