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Financial Self-Leadership:

Building a Solid Foundation for Financial Health

By Lynne Hornyak

There are literally hundreds of books, magazines and newspaper columns dedicated to helping us become knowledgeable about resolving debt, organizing financial records, reducing spending, strategically investing, and protecting what we have. So why, despite all of this available information, do so many of us have a lousy relationship with money? By “lousy” I mean a fearful, insecure, avoidant, impulsive or neglectful style of managing one’s personal finances.

One explanation is that information (money knowledge) may be necessary but is not sufficient to successfully manage your money. There is something equally important: a personal, subjective element that our culture tends to overlook in our “information is power” mentality.

Financial writers often point to two emotional (subjective) factors that influence money behavior in the investment realm: fear and greed. One only needs to read about investor behavior over the last five years to see the power of those emotional engines.

Most of us experience fear and greed to some degree. So why do they drive some people to do irrational things -- like investing all of their retirement money in their company’s fast-rising stock -- while other people diversify despite a lower rate of return?

I believe that it has to do with personal leadership. Being driven by fear or greed is a failure to lead one’s self in the face of turbulence. And on a less dramatic level, insecure, avoidant, impulsive and neglectful money styles also reflect problems with self-leadership. Since money is such an important and potent area of life, it behooves us to figure out what qualities or characteristics enable us to take personal leadership.

Financial Self-Leadership

Individuals who take personal leadership in their money life exhibit the qualities of Comfort, Confidence, and Control. Those who are comfortable with money have a basic familiarity with money matters and know their financial priorities. They don’t get overwhelmed when financial situations arise and avoid making decisions, or make decisions impulsively. Consequently, they build up a base of experience with handling financial matters.

What I mean by control is making choices about money matters. Individuals who are in control of their money life have learned what works well. They learn from their mistakes and change their approach when it doesn’t work.

Confidence comes from making financial choices over time, experiencing success as well as disappointment. People who are confident in their money life are not arrogant or cocky. They exude a faith in themselves that they will effectively handle financial situations that arise.

These three characteristics rest upon a deeper foundation that Dr. Nathaniel Branden articulated in his work on self-esteem. Good self-esteem involves trusting your ability to make appropriate choices and cope effectively with adversity. It’s what enables us to handle the constant challenges in our complex world.

According to Dr. Branden, self-esteem is built on a life-long commitment to six principles or "pillars." These pillars are action-based practices for daily living. I’ve adapted them to the arena of personal finance where they serve as the foundation for developing a secure grasp on your money life. With each pillar I’ve included an exercise that can prepare you for taking action to live that pillar more fully.

1. Living consciously with money -- facing reality even when it is painful

This principle is about the courage to look at the hard realities of your money life. This may mean facing the fact that you don't earn enough to pay the bills, or that you spend more than you earn, or that you made irrational investments during the bull market. Commitment to this pillar means that you refuse to take the easy way out by avoiding awareness of your true financial situation.

Exercise: Identify one money-related task that you have been avoiding, such as balancing your checkbook, or opening your retirement account statement. Make the commitment to yourself to face the “hard truth.” Observe what happens in your thoughts and feelings as you approach that task keeping in mind that you are consciously refusing to take the easy way out.

2. Money self-acceptance -- acknowledging your thoughts, feelings, and actions

This principle involves owning your money attitudes, feelings and habits but without self-criticism. It builds on the awareness developed in the first pillar.

Commitment to this pillar means letting yourself admit, for example, that you believe that you’re lousy with numbers and that’s why you don't balance my checkbook. And, you don’t beat yourself up for that recognition.

Acceptance also involves accepting that you can develop more constructive attitudes and patterns -- you just aren't there yet. It means acknowledging that you will make mistakes and have setbacks as you learn to handle your money in new ways – and that is just part of the journey.

Exercise: Find a time when you can be uninterrupted for 15 minutes. Ask yourself these two questions: In what situations do I consistently handle money well? In what situations do I consistently avoid or mishandle my money? It’s best if you write your ideas down. Then, if you want to push the envelope: What am I typically thinking and feeling at those times when I handle it well, and when I mishandle money?

3. Financial self-responsibility -- realizing that you alone are responsible for your life

You alone are responsible for your financial well-being. This pillar may seem to fly in the face of relationships, particularly traditional relationships in which women were financially dependent on men to earn the family income. And, the idea of financial self-responsibility may be scary to individuals who developed "money myths" discounting their capabilities to be equal partners in money matters.

Commitment to this pillar means taking charge of your money life as a single person as well as doing your part in relationship, however that part is defined. By refusing to abdicate your financial choices, you empower yourself and gain the confidence that comes with practice.

Exercise: For one week, do the following observation: Where do I give away my power to make financial choices? To whom? Under what circumstances? (Note how the exercise for this pillar builds on the first two principles.)

4. Money self-assertiveness -- being authentic in your interactions rather than pretending to be someone you are not in order to avoid disapproval or disappointment

When you are financially self-assertive, you present yourself to others in a way that is consistent with your financial means. Committing to this pillar means that you don't pretend to be rich when you're not, out of fear that people will look down on you. You are comfortable saying "I'm trying to cut back on my spending, so let's go out for coffee rather than dinner." On the other hand, it also means being comfortable with sharing financial successes rather than downplaying them out of fear that someone else will feel bad or envious.

Exercise: Try this inquiry: With whom do I pretend to be wealthier\less financially successful?

5. Dealing with money purposefully -- identifying your goals and the actions needed to attain them, setting your priorities

Commitment to this principle involves identifying your financial goals for earning, spending, investing. To be purposeful, one must clarify the details of those goals. The acronym SMART is pertinent here. SMART stands for Specific, Measurable, Achievable, Realistic and Time-defined.

Typically, the most difficult task of dealing purposefully with money has to do with setting priorities. We often have financial goals that conflict. They are much more achievable if we prioritize goals that we cannot accomplish all at once.

Exercise: Write down your top three financial goals for this year. Define what you could do to take one step toward each of those goals. Write it out for yourself in SMART terms.

6. Money integrity -- living the values that you claim to admire

Of all the pillars, money integrity requires the most from us. Commitment to this pillar means defining your core values and principles, and adhering to them when you earn, spend and invest money. Money integrity also means noticing when you rationalize how you are dealing with money and then making choices more congruently with your values.

When you are living in money integrity, you figure out a solution to the “golden handcuffs” of a well-paying, 24/7 job if you say that you truly value time for family and community involvement. If security in your later years is extremely important, you take vacations that won’t deplete your savings account. If you value preserving the environment, you refuse to invest in companies that are known to be major polluters.

Exercise: Find 15 minutes when you won’t be interrupted. Reflect on the question: what would let me know that I am ideally, 100%, in money integrity? Again, it’s best to write your answers down. The answers that you come up with to this question can also be used in the exercises for the other pillars. For example, it could help you to identify what you are already doing well, where you are falling short, and what SMART goals you could set.

In ending, remember that we are not born feeling comfortable, confident and in control of any of our relationships, much less our relationship with money. These experiences are learned and earned through action.

Taking realistic action steps builds confidence that combats fear. Having principles that we put into action is the container for greed.

Taking time to figure out what relationship we want to have with money, to define our financial goals and values, and then taking specific actions to strengthen our financial foundation is an investment in our selves. And it’s an investment that is likely to yield the payoffs that we desire.

Comments to: lmhornyak@worldnet.att.net

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About the author:

Lynne Hornyak is a psychologist and professional coach who specializes in the mental side of money. She can be reached at Lynne@WealthHealthy.com or 202-387-5923. Find additional resources at http://WealthHealthy.com.

References:

Branden, N. (1994). The Six Pillars of Self-Esteem. New York: Bantam Books.