How to Change Your Relationship with Money: Tips from a Financial Psychologist 

The formula for financial success is, theoretically, simple and universal: 

1. Live below your means.
2. Save the difference.
3. Invest in diverse assets for the long term.
4. Try to have some fun along the way.

But our ingrained financial attitudes and behaviors make living by that formula easier said than done. 

Fortunately, changing an unhealthy relationship with money is doable, and the process isn’t all that different from changing your relationship with exercise, nutrition, sleep, or other aspects of well-being. It just takes introspection, planning, and patience.

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Dig Into Your Development

Figuring out how to have a better relationship with money starts with understanding why you think and behave the way you do. 

Financial psychologist Dr. Brad Klontz said on the Erika Taught Me podcast that he believes much of the “why” behind our relationship with money comes down to our formative financial experiences. 

If you’re dissatisfied with your financial circumstances or behavior, Klontz advises asking yourself questions like: 

• What’s my earliest money memory?
• What’s my most joyful money memory?
• What’s my most painful money memory?

“What we develop on top of those [memories] are what we would call ‘money scripts’ — these beliefs around money,” says Klontz. 

“We’re trying to make sense of the world; we’re trying to make sense of how money works in our lives. And there’s so much value in tracing those back.”

Your money script may mirror the financial attitudes and behaviors you witnessed growing up, or it could be a strong reaction against the early financial trauma you endured. 

It may even reflect events that transpired long before you were born.

“Some of these experiences your parents had, or your grandparents had, or your great-grandparents had. … Many times we’re just playing out a script that was written for us generations ago,” says Klontz. 

Reassess Your Money Script 

No matter what makes up your money script, circumstances have changed since it was initially written, and some of your deep-rooted attitudes may no longer be financially or emotionally beneficial.

For example, if you grew up in an immigrant community and money was tight when you were a kid, you might continue to operate with what Klontz calls a “scarcity mindset” or “vigilance script” well into adulthood — even if years of hard work, frugality, and investing have given you a better financial position than your parents or grandparents had. 

But while a strong career and strong budgeting are great for increasing your net worth, inherited financial anxiety may prevent you from traveling, forming meaningful relationships, and accumulating other rewarding life experiences.

Alternatively, growing up with limited finances while being bombarded by media images of ostentatious wealth may lead you to link money with status and self-worth. 

A desire to leap up the socioeconomic ladder can motivate you to make risky investments in unproven assets or project an image of affluence by buying things you can’t afford. 

This financial-psychological dissonance can lead to low savings and unmanageable credit card balances.

READ MORE: 7 Bad Money Habits Keeping You in Debt

Granulate Your Goals

Once you’ve considered where your money script comes from, you’ll be in a better position to rewrite it. But the prospect of fighting long-entrenched mindsets may feel overwhelming.

To see how this might play out, imagine that you grew up in an economically disadvantaged household. You then emulated a wealthier lifestyle as an adult by overspending with credit cards, leading to an $8,000 balance that just keeps growing.

The mental strain of the debt compromises your sleep and distracts you at work. 

But you’re already struggling to pay more than the card’s monthly minimum, and repaying a balance equal to about two months of your income is intimidating.

When approaching a daunting challenge like this, you’ll improve your chances of success by breaking it up into small steps. 

A 2023 study published in the Journal of Applied Psychology suggests that reframing a big behavioral change into more manageable subgoals has several benefits, including:

• It gives you greater confidence in your ability to effect the desired change.
• It makes you less likely to procrastinate.
• It makes you more committed to seeing your goals through.

Based on this, a gradual approach to eliminating your $8,000 credit card debt and changing your habits could involve:

1. Checking if your employer has a free employee assistance program that allows you to work with a therapist on self-esteem and impulse control.
2. Transferring your credit card balance onto a card with a 0% APR to curb the card balance while you work to repay it.
3. Starting a side hustle by walking dogs for eight hours a week at a rate of $15 per hour.
4. Cutting $80 off your monthly budget by canceling unused subscriptions, finding cheaper car insurance, and increasing your insurance deductibles.

That step-by-step process allows you to pay the debt off in less than a year while simultaneously addressing the psychological root of the problem. 

And the patience you developed along the way will serve you well when you move on to other financial goals, like investing.

READ MORE: How to Budget: 5 Simple Steps

Enjoy the Wealth of Time

In Erika's chat with Morgan Housel, author of the bestselling book “The Psychology of Money,” Housel points out that many behavioral changes yield quick results. 

For instance, when you adopt a new exercise regimen, your inflamed muscles will validate your efforts by crying out for days after the first grueling workout. 

The path to wealth, however, is typically slow going and may take time to see meaningful progress. 

“By far the biggest problem for new investors is not understanding how much time is needed to put the odds of success in your favor. And it’s not a month. It’s not a year. It’s something closer to five or 10 years,” says Housel. 

The upside of that news is you don’t have to be an investing genius to become wealthy. Housel points to the iconic investor Warren Buffet as evidence of this.

“Everyone in the industry … they're trying to answer the question … how has he done it?” says Housel. “They go into all this grand detail about how he values companies and what he looks for in products and market cycles. When really … the big takeaway is he's been doing this for 80 years.”

Granted, achieving Buffet’s net worth of $130 billion likely takes at least some degree of business acumen. But obtaining a net worth of “only” $10 million is doable for anyone who invests $215 or so per month in index funds from ages 18 to 80.

“If you are a teenager … you are like a time millionaire. You don't have a lot of cash, but you have so much time in front of you,” says Housel. 

“And when you realize the time is the part of the finance equation that makes all the difference … that's a huge asset that hopefully you value and take advantage of.”

Hold the Press Release

Talking money is still taboo. The American Psychological Association’s most recent Stress in America survey found that 45% of Americans “feel embarrassed talking about money or their financial situation with others.” 

And the silence is particularly deafening among women, according to a 2023 study by Wells Fargo and The Female Quotient.

Being open about your financial struggles and your intention to rewrite your money script helps break these taboos, which could encourage your peers to take action when they run into financial trouble. But that noble act might not lead you to personally change your behavior.

Research published by the Association for Psychological Science found that when other people acknowledge our “identity-related behavioral intentions” — e.g., an intention to change our money scripts — it makes us less likely to take action toward realizing those intentions than we would if they went unacknowledged. 

Basically, the researchers found that the positive response we get when we announce our goals gives us a premature sense of having already achieved them, which then reduces our motivation to actually see them through. 

If you feel a surge of inspiration to turn over a new financial leaf, give your social media channels a rest and convert that energy into actions rather than announcements.

FAQs

What is financial psychology? 

Financial psychology is the study of our financial beliefs and behaviors. 

In addition to researching topics related to the psychology of money, a financial psychologist may also work with clients to help them correct financial biases and meet their financial goals. 

What is money vigilance? 

Money vigilance is one of four money belief patterns, or money scripts, identified by Dr. Brad Klontz and other researchers in 2011. 

People with a financially vigilant mindset tend to save conscientiously, limit spending on nonessential items, and avoid carrying a credit card balance. 

This mindset is correlated with socioeconomic and financial advancement, but it may limit the enjoyment and sense of security that financial prosperity should ideally provide.  

TL;DR: How To Have a Better Relationship With Money

Many of our habits and beliefs around money are deeply ingrained — maybe we grew up with a scarcity mindset or felt we needed to overspend to prove our worth.

By understanding the why behind your spending and saving, reassessing your internal “money script,” and breaking your goals down into manageable steps, you’ll be better able to control of your relationship with money.

For more tips on managing money and your emotions, listen to the full interviews with Dr. Brad Klontz and Morgan Housel, or check out these other episodes of the Erika Taught Me podcast:

• Do You Have Money Trauma?
• How To Get Mentally Strong as an Adult
• How To Budget for Beginners

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