When meeting with prospective clients one of the first things I try to do is get a feel for how they like to spend their money. Are they spendthrifts? Are they frugal? Do they like to just get by or do they like to live it up? I like to give them a homework assignment before ever meeting with them. Before meeting with me I ask that they track their spending. Having to tell a prospective client that they cannot have the lifestyle quality that they want is one of the hardest things that I sometimes have to do. And I definitely do not want to have to do tell people that their wealth and income cannot support their current lifestyle. Unfortunately, sometimes I have to do just that.
For these clients, the battle to steer them in the right direction may take a little longer than for those people who already practice living within their cash flow level. Sometimes there is initial conflict where the client(s) will argue that they are able to maintain their current level of spending. The biggest roadblock to changing someone’s spending habits is changing the attitudes toward spending. Some people are naturally frugal and some are not.
Why are some people naturally wise spenders and savers and why are others not. Most of it comes down to two factors, their personality type and their financial upbringing.
Here are several money personality types that I see frequently when interviewing clients for the first time.
- The Home Maker – I am sure that everyone knows a family or an individual who is has this money personality. These folks are the ones who love to spend their entire life at home and rarely go out to eat or take vacations. They spend both their time and money fixing up their home to make it the best home they can, then they spend most of their time at home (when not working). I know a lot about this one as this is what both of my parent’s money personality types were.
My parents loved to have a nice home. In fact people I had never met would often come up to me and tell me how nice of a house I had. My mom would decorate the house in a traditional country cottage style and would clean the house at least 4 days a week. My Dad would either mow grass, trim bushes, edge, paint, etc. at least 4 days a week. When my mom would ask me to help with either the inside chores or outside maintenance of the home my parents would just go behind me and “fix” what I did wrong. To this day I hire someone to mow my grass.
Home Makers tend to be savers; Common money traits for Home Makers are they are concerned with funding a college education for their children (I had no debt coming out of college, but it took me 5½ years to complete my bachelor’s degree) and their retirement. Home Makers are very proud in the way they handle their money but usually are reluctant to share higher level details such as their entire investment portfolio with their financial advisor. They like to brag to friends and family when big ticket assets such as cars and homes are paid off and like to talk about rates they have seen on CD’s at the bank. Roadblocks of success for Home Makers are avoidance of bad real estate decisions and mortgage avoidance as well as understanding proper portfolio diversification
- The Tycoon – These are the small business owners or entrepreneurs. Tycoons love to take risk. In fact, if they did not have risk in their life it might be detrimental to their mental state. Everything a Tycoon does revolve around their business. It is their way of life. Often times Tycoons will bring their family into their business so they can spend time with them. Sons, Daughters, Wives, Husbands. If this does not happen often times they choose to not spend time with their family. I usually see that a great majority of a Tycoon’s net worth is tied up in their business so crafting investment portfolios is different as Tycoons will take most of their portfolio risk with their business. Challenges for Tycoons include taking money out of their business and putting it to work with other companies. But when a Tycoon does decide to make other outside investments, those investments tend to be on the riskier side. Tycoons usually do not like to be told that they should have an emergency fund or that they need fixed income investments.
- The Workhorse – These are the people who work 12 hour days so they have enough money to spend on gadgets that will help them do the same amount of work in 11 hours. Then they can work another hour on something else. They love to work!! Working enables them to buy fancy cars, have name brand clothing, the larger than needed home, etc. so they can have prestige and status. These types of people usually do not have the time to spend learning about their finances so they take advice from outside sources such as their buddies on the golf course, news media, or friends at a dinner party. Their investment portfolios usually have a lot of different types of investments, often times very risky, without a real clear goal for them. Workhorses often like to have hobbies where they feel they are either businesses or investments. One of my good friends owns several collector cars and he has owned them for a long time hoping the market for them will skyrocket. When I asked him what he plans to do with them he says that he would like to get into the Collector Car Business someday. The problem is he is too busy working to do that. Funny thing is the cars in his collection are now worth a decent amount of money, but he is too busy to cash in on them. For married couples who are both Workhorses confusion about their finances is commonplace. Usually each spouse has their own separate portfolio and there is little coordination between them. Married Workhorses are commonly referred to as DINKS or “Dual Income, No Kids” because raising children would take time that they do not have. Workhorses usually want to abandon their investment, insurance, and tax decisions to professionals, but controlling spending is the biggest challenge for them.
- The Nomads – These are the people who do not like to be tied down to commitments. They tend to like to travel the world and do so without preparation. Nomads like to downsize their lives and have as little “stuff” as possible. Nomad tend to be “small home” people. They do not like to work if they can help it and do not like to be in stressful situations. Nomads enjoyment in life is tied to the experience of their life. They like to have their mobile device handy so they can share their experience with others. Nomads tend to be very good savers but are at times apprehensive when it comes to taking risks with their investments. After some coaching though Nomads usually embrace offloading financial decisions because it offers great stress relief.
There are other personality types that are more extreme. For example people who love to gamble with all their money at the casinos or people that put all of their money under a mattress come to mind. I usually do not see much of this when working with people. In fact, if I do come across them I usually do not work with them because I would not be able to do much for them.
After reading this people must think that I do not like any of the money personality types, but that is not the case. Actually I like to work with all of them. In fact what I see is that most people fall into more than one type of personality. Myself, being raised in the Home Maker household have some of those traits, but not a lot. I have a little Tycoon in me as I have my own company. My wife and I just started our family in our forties so we were Workaholics for a long time, but now I would love to experience new things, travel more, and downsize my life so I am working at being a Nomad.
Often times I run into couples who are not the same personality. I would say that this makes up most households in the United States. Being able to integrate the personalities to find a workable solution is the key for any household.