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Rich tips: How to take control of your money

Personal finance expert Farnoosh Torabi discusses in her new book, "Psych Yourself Rich," how to grow wealth on your own terms without fear or anxiety, and gives tips to build a healthier relationship with money. An excerpt.
/ Source: TODAY books

Personal finance expert Farnoosh Torabi discusses in her new book, "Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life," how to grow wealth on your own terms, without fear or anxiety, and gives tips on how to build a healthier relationship with money. An excerpt.

Chapter four: Embrace your relationship with money

Constructing a healthier connectionA colleague of mine, Atefeh, a CFA with a degree in psychology, tells me in all honesty that “money makes me anxious because I always fear it will run out...I have the need to both make money and save it, so I never end up enjoying it...I know there has to be a happy medium.”

Well, there is a happy medium. Just as in any relationship, there are compromises. Married folks, like my parents, will tell you this. But as long as there is a commitment to the relationship, a willingness to work hard, be patient, and make careful decisions, your relationship can be a healthy one. As we know in so many other realms of life, the mind that says “I can do it” can help us achieve anything, including financial bliss.

Identifying what’s not working
Since so many of us are in the dumps about money, it’s important to first isolate what about the relationship is troubling you. If you don’t feel in control, what needs to change? If you’re anxious, what do you need to do feel more certain about? If you don’t feel confident, why are you insecure?

To know the details of your money picture is to know yourself. First, you need to understand what your lifestyle is today and what you want it to be in the future. What is, in fact, your mission statement for life? What are your values, your hopes, your dreams? What ethics do you follow? What inspires you? What do you know about yourself (your strengths and weaknesses)? This process of identifying what’s not working is similar to your thought process before entering a serious relationship with another person. It helps to know what you want out of it, what you’re going to give back, and how you plan to keep the relationship thriving.

You can reestablish your relationship with money in the following four ways:

  1. Focus on the good. Feeling appreciative of your financial situation, despite some of the possible setbacks you’re facing, is one way to improve your relationship with money. Terri says this is a behavioral exercise that often helps her clients. “I’m hearing people having a little bit more appreciation for the fact that they have a job, they have a home and live indoors. As people have more appreciation, feelings of depravation can diminish.” If you’re trying to feel more appreciative of your money and develop a closer relationship in that sense, it’s important to surround yourself with people who share your beliefs and values.

  2. Reflect on earlier years. To transition out of any of bad relationships with money, Terri agrees with me that the first step is to explore our earliest connections with money. How did our upbringing leave an impression? What did our parents teach us (or neglect to teach us) about money? What do you want to change about the past? Just as we did this to formulate our philosophy on money, it’s important to do so when trying to find peace with your relationship with money.

  3. Roll up your sleeves. To connect with your money, you need to do it on a regular basis and in as many ways as possible. “Until people get very hands on with their money —tracking it, keeping account of how it’s spent, analyzing where their money’s gone, their values and expectations — they’re stuck,” Terri says.

  4. Let fear make you stronger. Fear is a major emotion when it comes to our finances. Some of us fear failure (losing our jobs), some fear dependency (being in a marriage and not having any financial knowledge or wherewithal), and some fear the unknown (a sudden market crash). And I dare say that having a little fear in your money relationship can go a long, long way. At the least, it may prevent you from making the choices that will lead you to your worst nightmare.

In general, we never want to imagine bad things happening. We want to think that some supernatural force will protect us from evil. But in life, the unexpected happens. And although “preparing for the unexpected” may sound oxymoronic, you can, in fact, ensure that you have various options available when the “unforeseen” becomes the “seen.” And wouldn’t you like to be prepared to deal with or possibly even avoid the negative ramifications of life’s difficulties?

The same is true when it comes to money. We’d like to think that our jobs will always be there, that our savings will be protected forever, that our homes will only appreciate in value. But people do lose their jobs and their savings, they get robbed, scammed, divorced, they fall sick without health insurance, all things with major financial repercussions. A little fear can help you face these possible realities and prepare for the worst. It can inspire you to take control and change bad financial habits.

I expect some of you disagree with my notion about fear and money. We know that fear can get in the way of us getting ahead in life. But fear of financial disaster can yield positive results when it is coupled with awareness: a wakefulness to the potential tough times that are the consequences of certain actions and choices. You want to get to a place where you can say, “I would never want that to happen to me!” After that, you will be prompted to take more responsible action. For what it’s worth, Terri agrees with my theory on fear. Channeling your fear is sometimes very helpful, she tells me, because “you’re imagining hitting rock bottom and what it feels like to be stuck and really in trouble.”

Excerpt reprinted with permission from “Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life” (FT Press) by Farnoosh Torabi. © 2010 by FT Press.