For many people money often represents pain, worry, shame, guilt, embarrassment and even conflict © Dreamstime
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I was amused to read a 2015 study by University College London that analysed the money views of 15,000 people. The researchers found that, on average, people were seven times more likely to tell a complete stranger how many sexual partners they’d had, and whether or not they had ever contracted a sexually transmitted disease, than tell them how much they earn.

This doesn’t surprise me. Having interviewed several hundred people over the many years that I was a financial adviser, and having given talks on financial wellbeing to many more over the past three years, I am firmly of the belief that for many people money often represents pain, worry, shame, guilt, embarrassment and even conflict.

What I have also learned is that the language we use in relation to money can have a big impact on our day-to-day financial attitudes, habits and actions.

For example, the timeless advice of “spend less than you earn” makes a lot of sense but it sounds inhibiting, unexciting and hard work. The sort of thing an accountant or actuary might do, but not a successful, fun and interesting person like you.

When I ask audiences if they have a personal monthly expenditure budget, rarely more than 10 per cent of people raise their hands. And over half of those with a budget admit to not actually following it.

Much of the problem relates to how people interpret what a budget means. Some think it represents a restriction on their ability to decide where, when and on what to spend their money. Budgets are for bores, they say.

For these reasons I suggest people don’t spend less than they earn and don’t budget. Instead I advise them to earn more than they spend and adopt smart spending.

Earning more than you spend can be achieved by increasing your income, lowering your expenditure or a combination of the two. The key point is it sounds and feels aspirational and achievable. While some people may struggle to increase their income, particularly in the short term, many more could if they felt that doing so would help them to be better with money and see tangible benefits, rather than just frittering it away.

And this brings me on to smart spending. The principle is that you are actually three people. Basic You is core living costs, Future You is repaying expensive debt and saving for the future, and Fun You (my personal favourite) is all the things that make life enjoyable such as holidays, hobbies, socialising and luxuries.

As a rough rule of thumb I suggest allocating income 50 per cent to Basic, 20 per cent to Future and 30 per cent to Fun. If core living costs are higher than 50 per cent (perhaps you live in an expensive area or are in the early stages of your career) then what’s left after paying Basic would be allocated 40 per cent to Future and 60 per cent to Fun.

This approach acknowledges that most people want and need to spend money on things that make life interesting now, but that they also need to “spend” on their future self.

Debt has become central to the financial affairs of most people but my experience is that few young adults have been taught the difference between “good” and “bad” debt.

Clearly debt makes sense if you want to buy something now that you don’t have all the funds for, but which you think will go up in value much more than the borrowing and interest over the repayment term. A house or university education are both examples of “good” debt.

However, even to call government provided student loans “debt” is totally misleading and disempowering. I know of no other type of debt that only requires regular repayments if you earn a few thousand pounds a year over the median wage, requires no repayments if you can’t or don’t wish to work, and is written off after 30 years.

If graduates viewed student loan repayments as a contingent graduate tax, and balanced that against their improved human capital asset value arising from much higher lifetime earnings potential, they would feel much more optimistic about the future. Words really do matter.

Using expensive overdrafts, credit cards, catalogue clubs, store cards or loans to fund day-to-day spending or to buy something which will depreciate in value is stealing from your future because it reduces your capacity to save. The Financial Conduct Authority’s recently released consultation on overhauling the provision of expensive “bad” debt makes clear what a serious problem consumption-related borrowing is for a significant number of people.

Then we have the word “retirement”. I have personally never aspired to retire, perhaps because I subconsciously associate that term with being old and inactive. While I know many retired people do lead active and fulfilling lives, I also know that many do not.

Many working-age people are aware that they need to save for their older age, and that they will probably live longer than their parents, but they are not emotionally connected with their older self. This means current spending can easily take precedence over saving for the future.

In my financial wellbeing talks I never suggest people save for retirement. Instead I ask the audience to raise their hands if they’d like to make paid work optional and only work because they want to, not because they have to. Almost every hand goes up.

Making work optional is exciting, liberating, aspirational and cool. Planning for retirement, on the other hand, seems distant, frightening, boring and too much like hard work. Having options is appealing, whereas being old and infirm isn’t.

The language we use to explain money issues really matters in helping people to feel emotionally connected to their inner “planner” self. This will help them do what is in their best interests in the long term and minimise the sabotage of their myopic, impulsive and self-interested “doer” self.

The more comfortable we feel talking about money and the more we do so in terms we can understand and relate to, the more likely we are to understand the complicated relationship we have with it. Knowing yourself better, and the role that money plays in influencing your thoughts, decisions, habits and attitudes, is essential if you want to worry less and enjoy life to the full.

Jason Butler is an expert in financial wellbeing. He is the author of Money Moments: Simple Steps to Financial Wellbeing Twitter: @jbthewealthman

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