Wouldn’t it be nice to get what we want without selling our soul in the process? In our pursuit of financial success, we often walk a fine line between using money as a tool, and becoming addicted to it in the process. Recently, I’ve been thinking about this idea of money addiction. Maybe this explains my past financial mistakes, and those of so many else I talk with. I think this is a type of disorder we all suffer from occasionally, and it affects the rich and poor alike. If we can solve this however, we can maintain a healthy relationship with wealth across all our different life stages.

Understanding Money Addiction

Money addiction can be defined as a compulsive engagement in the realm of our finances, despite adverse consequences.

It can manifest in various ways, affecting both those with too little, and those with more than enough.

Sounds contagious. Worried if you may be hooked on dollars?

Signs and symptoms of money addiction may include:

  • Compulsive buying and selling decisions both with material goods, and investment products
  • The feeling of being alive when taking extreme financial risks
  • Long term opportunity costs as a result of impulsive lifestyle decisions, masquerading as financial ones
  • Painful urination or a metallic taste in your mouth

That last one doesn’t sound right, but it’s also important to note that financial challenges don’t always indicate a addiction. Many people face money struggles at different points in their lives, especially during economic downturns or personal setbacks. How we get through these challenges can often lead to greater resilience and success in the future

The Three Stages of Life

Starting Out

When money and responsibilities start accumulating in your life, money can often feel scarce. This is when, if we choose to take it seriously, we can set in motion the inevitability of wealth. We can exploit the time value of money – compounding returns takes a little, and makes it a lot over time – best to start now. eh.

Key points to consider:

  • You’re going to want to move faster than possible at this stage
  • Focus on driving up your income higher and controlling your expenses – don’t get distracted from the task of setting a strong foundation, and don’t be afraid to defer the travel plans
  • Be cautious of getting ‘stuck’ at the starting line – Personal finance is the most critical first step, but it’s not the destination
  • Remember that learning is a poor substitute for actual doing – at some stage you should pull finger and get something done. There’s no point learning you’re not going to put in practice

Building Up

For those in their 30s and 40s who have established careers and families, the challenge lies in balancing financial goals, with lifestyle objectives. Be mindful of:

  • The instant wins – sometimes the smarter answer is to invest before you pay down the mortgage
  • Making financial sacrifices now will yield long-term family benefits – the sacrifice will be worth it
  • Avoid the temptations of constant upgrades, new projects, and chasing the Jones’s
  • Staying the course with investments rather than frequently changing strategies is best here

Winding Down

As retirement approaches, your relationship with money should shift. Often it doesn’t though, and it’s usually because it’s hard to turn your back on the values that got you to where you are now (assuming that’s a good place) To avoid money addictions:

  • Know that money is meant to be spent, ideally by you, on things that are important to you.
  • Balance financial security with pursuing purpose – hobbies are great, but something beyond yourself is much better
  • Understand that the ability to replace money through work diminishes, so the value you place on money can be closely linked to your sense of mortality

Just a quick note on leaving an inheritance. I’d always suggest it’s more important to prepare the vessel more than the contents – teaching your kids how to build their own wealth, is going to be so much better than leaving them a bunch of money. Do what’s important to you here and what feels right for  your circumstances, but remember this: According to multiple reports, 90% of family wealth disappears by the third generation, a phenomenon often referred to as the “third-generation curse“. To reverse the curse, you need to initiate purposeful intervention. Talk to your kids early and often about money, and encourage them to make good financial decisions, even if you’re still learning in the process.

Redefining Money

To overcome money addiction, reframe your understanding of what money truly represents, and how our relationship with it should change over time. Consider viewing money as a token of human time and energy rather than just currency, especially currency which the government and central bank can print out of thin air! If you can invest or hold money on a way that offsets the impact of inflation and currency debasement over time, you can begin to build a type of wealth that lasts generations. If you believe, as I do, that we’re about to see a new generation of wealthy families, then now’s the time to prepare.

Conclusion

Maintaining a healthy relationship with money requires ongoing self-reflection and ‘adjustment’. Put another way, wealth isn’t found in the accumulation of money, it’s found in our growing influence. Money puts action into our intentions.

By understanding the risks of money addiction at different life stages and redefining our concept of wealth, we can work towards financial success without sacrificing our well-being or values. What does it profit a man to gain the entire world, yet lose his own soul in the process?

You can listen to the podcast version here, or check out video below.