Liz Koh: Feelings intrude on managing money

The principal reason people struggle to manage money successfully is that psychological factors get in the way.

There is a big difference between knowing the right thing to do and doing the right thing.

When it comes to getting financial affairs into shape, it is no different.

Some of the worst at managing money are highly educated, financially literate people on high incomes.

The principal reason they struggle to manage money successfully is that psychological factors get in the way. Everybody has a different relationship with money based on a host of underlying feelings and emotions.

Childhood experiences of living in either poverty or luxury can affect your relationship with money and whether you value, respect, fear, or loathe money. Past experiences of financial loss or gain can affect attitudes towards taking financial risk. Personality issues can also have an effect.

For example, excessive spending is often an antidote for low self-esteem or depression.

Being able to manage financial affairs well is a combination of financial literacy and fully understanding your relationship with money.

Financial literacy alone is not enough.

Once you understand the psychological reasons behind difficulties in managing money you can use techniques to manage them.

Set goals for your life before you set financial goals, as a way of understanding your purpose for accumulating wealth. Write down goals and share them with others who will hold you to account for achieving them.

Set up banking to manage your income, expenses and savings automatically. Changing your financial outcomes means putting your financial plans into action.

* Liz Koh is an authorised financial adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free, call 0800 273 847. For free e-books see moneymax.co.nz and moneymaxcoach.com