Exploring Women & Money: Is Your “Money Personality” Harming Your Business?
Part Three of Four
Many people assume financial literacy is limited to understanding numbers and smart cash flow… but if emotions impact how we spend money, some experts feel recognizing them is also an important part of our financial skills mindset.
Without that level of understanding, personal habits can bleed into business finance.
Practitioner of the Kinder Institute’s philosophy of life planning, wealth advisor Lois Carrier believes money personalities have incredible impact on business success. Particularly for small business and entrepreneurs with less financial experience, recognizing money patterns can make or break their business.
“Many Certified Financial Planners™ feel that personal emotions shouldn’t be involved in financial planning, but that’s where money decisions reside,” says Carrier. “It’s not just about the numbers, it’s about the heart.”
In addition to education and common sense money skills, financial life planning explores the softer side of money behaviors, patterns and how to use money to fund what is most important to the individual. These can apply to both women and men.
According to Carrier and the Kinder Institute, there are four basic types of money personalities: The over-spender, the under-spender, the compulsive over-spender and the hoarder. Each personality can create specific problems for a business owner.
The compulsive over-spender
A business can look extremely successful on the surface, yet be deeply impacted by an owner or partner who is constantly in debt due to compulsive overspending.
Imagine this: a partnership of two women, co-managing a business that generates several hundred thousand dollars a year in personal income for each partner. Because it’s a consulting business, each partner handles her own income taxes. Each quarter, the bill for estimated taxes is fairly high, due to their tax bracket. If one partner were a compulsive over-spender who is unable to control spending and finds it impossible to save money, saving money to pay quarterly taxes would be very difficult.
Her intentions might be to save enough to cover her financial responsibilities and fund her retirement accounts, yet her compulsive behavior could override those intentions, leaving her with nothing. Not only could she easily find herself in serious trouble with the IRS, Carrier says, but the consequences of her nonpayment of taxes would drastically impact both the business and the other partner, once the problem escalates and the partner finds out. If the compulsive over-spender were to go to jail for owing over $150,000 in back taxes, for example, the damage to the reputation, finances and day-to-day management of that business could be disastrous.
In a less extreme example, an over-spender might be the tax attorney who owes back taxes, realizing the impact to her self-confidence and self-esteem is impacting how she works with clients. The tax lien combined with a poor credit history leave her unable to qualify for a commercial mortgage when her business needs more space. The office condo she dreams of purchasing isn’t going to happen.
It also might be the self-employed writer whose overspending habits leave her credit cards continually maxed out so she can’t afford a new laptop when it’s needed, or the store owner who has stockpiled far too much product she can’t sell, leaving her with no cash reserves for seasonal merchandise when the holidays approach. It also might be the medspa owner who can’t hire a new aesthetician or buy that laser equipment because her business line-of-credit is already tapped out, or the physician who impulsively applies for a quick loan to buy expensive capital equipment she doesn’t need.
The impact of personal overspending habits on a business can be subtle or catastrophic.
At a recent financial education event held in Sedona, Arizona by Carrier, she asked women to raise their hand if they felt they had a spending problem. Fifteen of the twenty-six women raised their hand.
Overspending is an emotional coping mechanism that leads to purchases quickly regretted. Some women are quick to laughingly label themselves a spendaholic, Carrier says, but the reality is not funny.
Money personalities and spending habits might be rarely discussed, but can shape how a person might apply the financial literacy skills they learn. For some, the lifetime impact on business and personal finance is immense.
Under-spending has its own set of consequences, too. The under-spender might be so cautious to spend that they don’t invest enough in the business to help it succeed, and has to continually be talked into investing money back into the business.
In one example Carrier shared, a business owner of a catering service had become very successful delivering healthy meals to busy leadership executives. She needed a business loan to grow the business, funding the addition a of delivery vehicles, kitchen equipment and qualified chefs, and had the assets to qualify. Due to her fear of spending money, however, she never applied for the loan she needed. Demand overwhelmed what she could do on her own, food quality and service declined, and she eventually went out of business.
Her money personality as an under-spender crippled her business success.
Other examples might include the doctor with a thriving practice who is afraid to open a second location, the dentist who doesn’t hire a new dental assistant when it would improve efficiency, or the thrift store who can easily afford a new van to pick up furniture donations but is reluctant to spend.
As the compulsive over-spender is an extreme, the hoarder money personality is an extreme, too. A hoarder might have ample cash flow, but be unable to reinvest that money back into her business to help it grow. Her need to constantly maintain high cash reserves in her money market fund are stronger than her instinct to hire a public relations expert, or spend $8,000 in a new website, or launch Facebook ads to bring in customers. She knows marketing is essential, but just can’t make herself commit to spending the money it requires. Instead, she comforts herself by looking at her bank balance, thinking cash security is more important than business growth.
Saver or spender, extreme or not, the only way to control the influence on finances is understanding and recognizing the behavior, according to Carrier. A banker or financial planner can give advice, but changes or following that advice is up to the individual.
Founder and CEO of Derma Health, Trish Gulbranson, feels her ability to save money has been a motivating reason for her success. “I’m a saver and careful with my money. I determined that the only way to run a business is with profit from day one. A big decision was purchasing my initial equipment to open my business venture with pre-owned equipment. I got the same number of years out of the equipment and it cost me half of what others paid, totaling about a $250,000 savings.”
The link between money personality and business
Do you relate with one of these patterns or know someone who does? It’s logical that emotion can sometimes influence a business purchase, but we feel most financial decisions are guided by past experience, expertise and intuition far more than emotion. It doesn’t influence every person or every purchase. Women business owners are smart, competent professionals, but we each have our own strengths and weaknesses that influence business success. The key is finding staff or expert consultants that help us make the most of our strengths, and fill in gaps caused by our weaknesses for a balanced approach.
Isn’t this a fascinating topic? Stay tuned for Part Four, the final post in this series about Understanding Women and Money.
A fee-only Certified Financial Planner™, Lois Carrier is a Founding Principal, President & Chief Executive Officer of Carrier, Maurice & Webb Wealth Advisors with offices in Cottonwood, AZ and Tennessee.
This is part three of a four part series exploring women’s attitudes around money and how this impacts business, including insight from several local experts. Click here for Part One, and here for Part Two.
The opinions in this article are those of its author and people interviewed, and do not reflect the opinions of Horizon Community Bank or any employees thereof unless directly stated.