How your personality affects your financial decision-making

All Things Financial

Volume 16 No. 1
By Charles P. Jones, CFP®
Happy New Year!

All investors are not created equal. That’s why financial planners start their first client meetings with a discussion of money attitudes, goals and risk tolerance—the driver at the root of all investment decisions. Some planners do this by general conversation, others by detailed surveys they ask their clients to fill out.

The survey route can be a more valuable tool because it forces clients to face their money issues, perhaps for the first time. Despite the difficulty in facing up to such key issues, individuals get a better idea of where their money strengths and weaknesses really lie. Often, the real difficulties lie in how money is spent.

The real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know—how the sources of your money, the way you made it, your money viewpoints and current methods of handling it will inform every decision you make about it in the future.

The most important thing a questionnaire can reveal is your true money priorities and behaviors. Trained financial advisers, use both conversation and surveys to reach some firm answers that might surprise you.

Are there particular money types? In reality, you’ll find quite a number of surveys out there that define money types in particular ways, but you’ll find personalities that are common on the scale from conservative to liberal. Deborah L. Price, a Financial Planning Association member and founder and CEO of the Money Coaching Institute, offers these scenarios in an article titled, “What’s Your Money Personality?”

The Innocent: Price notes that innocents often live in denial, are easily overwhelmed by financial information and rely heavily on the advice and opinions of others. They tend to be the most trusting because they generally don’t see people or situations clearly—which leaves them open to bad decisions at best and fraud at worst.

The Victim: She notes that victims are people who tend to live in the past and blame their woes on outside factors and situations they claim they can’t control. These people may have been abused, betrayed, or have suffered some great financial loss, but they generally see life as a self-fulfilling prophecy that they can’t change.

The Warrior: Generally seen as a successful person in the business and financial worlds, they will listen to advisors, but they make their own decisions. They tend to be great caretakers.

The Martyr: These people generally put other people before their own financial health. They use their money to rescue others based on their high expectations for themselves and the people they’re rescuing, but these decisions may be costly in the long run.

The Fool: The Fool, explains Price, is a combination of the Innocent and the Warrior because they have no clue about what they’re doing but they’ll act fearlessly. They are financially adventurous and they act on impulse.

The Creator/Artist: These people often have a love/hate relationship with money. They’re constantly struggling to make their finances work, but they often feel that caring about money means something bad.

The Tyrant: Price reports that this type hoards money and uses it to manipulate others. They may have everything they need, but they’re never comfortable with their lives because they fear losing control.

The Magician: Price defines the The Magician as the ideal money type. They’re aware of their circumstances and responsibilities and can see situations very clearly.

A financial planner tries to see through the static to find out what you really need to create a solid financial life. But it might make sense to ask yourself a few questions before you and your planner sit down:

  1. How would you describe your financial status right now?
  2. What’s important about money to you?
  3. What’s your family history with money?
  4. What do you do with your money?
  5. If money wasn’t an issue, what would you do with your life?
  6. Has the way you’ve made your money—through work, marriage or inheritance—affected the way you think about it in a particular way?
  7. How much debt do you have and how do you feel about it?
  8. Are you more concerned about maintaining the value of your initial investment or making a profit from it?
  9. Are you willing to give up that stability for the chance at long-term growth?
  10. What are you most likely to enjoy spending money on?
  11. How would you feel if the value of your investment dropped for several months?
  12. How would you feel if the value of your investment dropped for several years?
  13. If you had to list three things you really wanted to do with your money, what would they be?
  14. What does retirement mean to you? Does it mean quitting work entirely and doing whatever you want to do or working in a new career full- or part-time?
  15. Do you want kids? Do you understand the financial commitment?
  16. If you have kids, do you expect them to pay their own way through college or will you pay for all or part of it? What kind of shape are you in to afford their college education?
  17. How’s your health and your health insurance coverage?
  18. What kind of physical and financial shape are your parents in?

One of the toughest aspects of getting a financial plan going is recognizing how your personal style, mindset, and life situation might affect your investment decisions. A financial professional will understand this challenge and can help you think through your choices. Your resulting portfolio should feel like a perfect fit for you!

January 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones , a local member of FPA.


Financial Resolutions

Any New Year is an ideal time for recommitting ourselves to things that are important to us. What could be more important than being financially secure? This has become even more of a priority to most folks in light of recent events. And what could be better than starting fresh in a new year? The start of a new year can be used to set your financial goals, not just for that year but for all the years to follow.

We suggest the following resolutions and believe that if you can implement (or reaffirm) these, then you are on track for making your future new years’ more enjoyable and less stressful.

  1. If you don’t have a written budget, do one now. If you do have a budget, update it to reflect your current situation (expenses & income) and resolve to stick to it.
  2. Resolve to save at least between 15 and 20% of your take home salary. Don’t set money aside only when there’s some left over; pay yourself first. There’s a good reason why you’ve heard this advice over and over. It works. Set aside 15 to 20% of every monthly payday into a regular savings plan or IRA, in conjunction with your savings plan at work.
  3. Resolve to take advantage of your employer’s retirement plan, whether it’s non-contributory, contributory or any other type of plan—make the most of company contributions. Not sure what works best with your other investments? Call us, we’ll be happy to coordinate this for you.
  4. Resolve to pay off those credit cards. Credit card debt is the number one reason that most people can’t get ahead. Pay the minimum balance due on a $1000 balance with a 16% to 18% interest rate and it may take 20 to 30 years to pay off. Think twice before whipping out the plastic. With credit card rates increasing, so does the length of time needed to pay it off. If you do use credit cards for convenience or to track your spending, become a “deadbeat” to the credit card company… pay them in full each month.
  5. Resolve to write or update your will. Wills are not just for the rich. Regardless of how much or how little money you have, a will ensures that whatever personal belongings and assets you do have will go to family or beneficiaries you designate. If you have children, a will allows you to appoint a guardian for them in the event of your death. Have there been changes in your life since you wrote your will? New children or grandchildren? Do you still want the same people as guardians for your children, or has their situation changed?
  6. Resolve to write down your financial goals. You wouldn’t start out on a long trip without a road map and/or GPS, would you? Well, the road to financial freedom can be paved, wide and easy to drive on (for those who plan and who follow a road map), or it can be a long, twisting, rutted side road, that leads to nowhere (for those who fail to make a plan for reaching their destination)
  7. Resolve to get educated about financial planning issues, such as the Roth Conversion we discussed in the December newsletter. Is it right for your situation? What questions do you have? 2010 offers what may well be a once in a lifetime opportunity to convert some or all of your retirement funds into a Roth IRA. Please call to set up a time and we’ll look into your situation with you, and give you the pros & cons of conversion for your particular situation.
  8. Financial planning is not magic. It’s not brain surgery or rocket science. And it doesn’t have to be boring. If you are with the right planner, it is comforting, and reassuring, with flashes of excitement as you reach your goals. Resolve to get started NOW on the road to financial security. This year, resolve to begin. Get “around to it” in 2010.
  9. Have you already been doing all of the above? It’s working and you’ve been prepared for the ups and downs that have come your way? Resolve to be a “financial hero”… share your experiences with financial planning with one family member or friend each month in 2010. You can start by sharing this newsletter or joining us on February 11th with our upcoming seminar: Truth & Consequences in Lake Oswego, 6-8 pm Call Susan Tinker @ (503) 291-1313 for more details, or to register.

Protection Parcel

Survey: Widespread Anxiety Among Health Policy Holders

A new survey commissioned by Columbia S.C.-based Colonial Life & Accident Insurance Co. finds a pervasive sense of unease among holders of health insurance policies.

One of the primary sources of this anxiety are changes to employers’ insurance plans in the past year. The survey found 49 % of full-time employed adults who are enrolled in an insurance program provided by their employers and/or their spouses say their employers made changes to their coverage in the past year. Of these respondents, more than eight in 10 expressed concerns over rising premiums, co-pays and deductibles, and concerns over unexpected medical expenses.

“This year’s troubling economy has forced employers to make some tough decisions in regard to their benefits plans,” says Tom Gilligan, SVP of marketing and branding at Colonial Life. “Employees are now justifiably concerned about the effects these changes will have on their paychecks and their financial stability. They’re left to deal with gaps in coverage that leave them feeling vulnerable and exposed.” While most of the changes reported concerned increased premiums, co-pays or deductibles, 13% of respondents reporting a change cited an elimination of one or more types of coverage such as life, health or disability.”

When employers make changes to their benefits plans as so many are being forced to today, it’s important to clearly communicate these changes to employees,” says Gilligan. “Otherwise, employees are left confused and ill-prepared to make smart benefits decisions. Never before has benefits communication been so important.”

By Bill Kenealy, Insurance Networking News, June 30, 2009.

Concerned about your health benefits? Call The Chuck Jones Team to set an appointment to review your employer-sponsored coverage &/or what other options are available to you. (503) 291-1313

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