How to have a better relationship with money (2024)

Can money really make you happy? This ING study says it can - and it's having a savings account that is the true secret to happiness.

The study, which polled nearly 15,000 people across Europe, the USA and Australia, found that 27 per cent of people living in Europe have no money saved. Furthermore, 42 per cent of Europeans that do have savings only have three months take-home pay put aside or less.

“We found the people who generally have a bit more savings, tend to be happier,” Jessica Exton, behavioural scientist at ING tells the Standard.

“Their level of comfort is greater and these people tend to feel a bit more confident in the decisions they’re making and have a bit more security there and a rainy day fund to fall back on.”

Yet, having a substantial amount of money in your savings account isn’t the only way to have a good relationship with money.

Having a good relationship with money is also about how comfortable people feel about how they make money, along with the positive and negative effect of their long and short-term spending.

For example, Exton explains that lots of the activities you do with your money is quite habitual, like buying that daily coffee or getting an Uber home from a late night. You need to think about if the money you are spending is something you should be doing right now or if it’s something that you’re doing out of habit – resulting in excess spending.

Exton continues: “Money can evoke a number of different emotions. It can really empower us in some ways and restrict us in others. It’s something that is part of the everyday and has so much connection with how we feel as people and how we feel fitting in to larger groups as well. It something that communicates our value or worth to some degree as well, it enables us to help ourselves and others.”

The relationship you have with money is a uniquely personal one, and a lot of how you interact with money depends on the lessons learnt from parents.

Exton explains: “Parents have a really big influence on how we manage our money later in life more so than how rich or poor we were growing up. If you had parents who were relatively frugal and quite patient, who set themselves long-term savings goals and every day were really quite diligent working towards those goals, research suggests you’re more likely to be aware of long term goals and be more patient in achieving those goals rather than letting emotion take over and spending with a short-term focus.”

There are three main ways to tell if you have a negative relationship with money: how comfortable you feel about your financial situation, whether you have a savings buffer and how much debt you have.

“If you have a plan for repaying that debt and are focused on longer term financial wellbeing then that’s good,” Exton adds.

“People who run out of money at the end of the month, it depends on their strategies when they run out. Do they stop spending? Or reduce spending as much as they can? If any of these responses tend to be on the negative side of things, this might indicate that someone might have a bit more trouble with managing money when there might be a benefit from focussing on it more.”

The way to have a better relationship with money is to rid yourself from debt (as much as possible) and to start building up your savings. This may involve sacrifices but the reward will be forming better habits with your finances.

Exton explains: “Everything is always a compromise. Everything you decide to spend money on will directly impact your savings and some of the time we need to make decisions about what is best for us to be spending the money on, given we have a certain amount coming in every month.

“Thinking about what we have and allocating it in the best way to maximise what we want. We need to think about what’s most important to us, given our short and long-term goals and deciding if the actions that we’re taking are aligning with these goals is a good thing to think about before jumping in and making that purchase.”

Once you have decided what sacrifices you are willing to make, you then need to make the reason you’re saving money relative to you – because if it’s not important to you then you are less motivated to do it.

“If you can identify something – it might just be three months of your take home pay in a rainy day account because that’s what you need to feel secure with your financial decisions then that’s fantastic – and so you can set small achievable goals to reach that decision and get there,” Exton says.

“It might be that you want to do up the garden at your house. If that’s the case, then that will be a good motivator as you’re building your savings account towards that. Making it really tangible can help also, define a specific kind of car you want to save for or where you want to travel because then it’s real and it’s easier to save for as well.”

The savings goal will then allow you to create short-term and long-term savings goals.

Exton explains: “You need to be really aware of what money habits you have and take note of how you can change that behaviour. Creating short-term goals, having reminders and accountability for those goals and pre-committing to things can be useful in the short term. This way you know every day you’re working towards any long term goals you may have. Learning and reading about financial goals is also a great way to be able to make informed decisions that are going to influence the rest of your life.”

Student debt, credit card debt and other loans can sometimes feel overwhelming, but thinking of them as part of your overall financial wellbeing can help you to put together a strategy to manage it correctly.

Exton explains: “It’s very tempting to choose the debt where you’ll have the most progress the fastest. If you have three amounts of debt and decide to pay the smallest one off first you may think you’ve gotten rid of a third of your debt. Whereas, that might be the debt that’s costing you the least as it’s the smallest amount. So you need to think about how much that debt is costing you in terms of payments every month and how you can target the most expensive debt first.

“It’s that kind of thinking that takes a shift because it’s not instinctual, but can be really effective in the long term. Setting automatic repayments can be really useful, because making a decision to consciously repay a certain amount of debt each month require effort. Whereas if you only decide to do it in January and set it up so that it automatically happens for the rest of the year, then you are likely to keep it up. Cutting things down into smaller goals can be really useful as well.”

Before getting a credit card, Exton says you need to think of the reasoning behind it.

“People have moved from using cash to using cards which has removed some of the pain of paying, because we don’t feel that we’re losing out so much because we’re not physically handing over money, we’re just tapping a card,” Exton continues.

“A credit card is almost one step further than a debit card because it’s not necessarily our money, it’s not coming out of our savings account, so that can influence how readily people spend money on a day-to-day basis. It definitely influences the emotions of the decisions that go into spending and savings, I would say if people are looking to get a credit card it is very important so they know how to manage the credit process.”

One way to make sure you always have money in your savings is to allocate a certain amount of money each month into you savings ‘bucket’.

Exton explains: “It all comes back to this idea of mental accounting, which means we bucket our spending decisions into different categories. So we might have ‘fun money’, which we only use for going out and seeing friends, and then we have rent money and grocery money and we’ve already allocated this money to a certain bucket so it’s really challenging to take it from one bucket and put it in another.

“We do tend to think that money can be used for certain things and not others. The classic example is you’re walking down the street and find £20. A lot of people will see that as fun money, something a bit extra that you could do anything with. But if you worked an extra hour to earn that extra £20 that would go into bills or rent.”

The favoured 50/30/20 rule could also apply to the bucket theory: with 50 per cent of your income allocated towards rent and bills, 30 per cent towards general living and 20 per cent paying off debt and putting into savings. Viewing your money in pre-allocated buckets will help you budget, create short and long-term goals and change your spending habits – thus creating a better relationship with money.

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