Your personality determines your most effective money management style. I remember applying for a server position at Applebee’s and having to take a personality test. It was my first time taking a test like that for a job, and so I answered all the questions honestly. Not surprisingly, I failed. In my opinion, the test wanted a personality type that was a follower rather than a leader. The manager who administered the test came back and asked me to retake it and to “give them the answers they want.” So, I did just that, and they hired me on the spot. You may recall, at some point in your life, taking a personality test like Myers & Briggs or one that helps you determine what Disney character with which you best identify. Whether you’re someone who loves to take charge, delegate tasks, or make sure everyone has a say, understanding your money management style is key to creating an environment that will allow your money to grow.
You’ll find that your management style correlates with a money type, those being “free spirit,” “the spender,” “the planner,” “frugalist,” or “the budgetnista.” Common money management styles are Autocratic, Paternalistic, and Democratic. When it comes to dealing with finances, each style has its advantages and disadvantages.
Money Management Styles
Autocratic: The Autocratic money management style is one whereby which only one person makes all of the decisions. This style of money management is typically found in single-person households, or in families where one partner is the sole manager of the finances.
- Advantage: The advantage of having an Autocratic management style allows for one to make decisions quickly, and people look to that person to be knowledgeable and the personal finance expert of their home. However, the disadvantages to this management style when it comes to a family setting is that
- Disadvantage: The difficulty of having this money management style, especially seen in family situations. Money management shouldn’t just fall on one person. Instead, it should be a family/team effort. An Autocratic money management style removes the ability for others to have a voice or feel as if their contributions to how the finances are handled are taken into consideration.
Paternalistic: The Paternalistic money management style focuses on the overall feeling that will surround a financial decision rather than the outcome of the financial decision. When it comes to our finances, we often let our emotions dictate what we should and shouldn’t be doing rather than focus on the numbers or our goals.
- Advantage: The advantage of having a Paternalistic management style is that unlike the Autocratic style, you seek out the opinions and advice of everyone involved in the financial decision. It supports a communicative environment. The form looks for ways to maximize everyone’s happiness and in turn, fosters teamwork and practical ways to motivate others within the family to not only achieve individual goals but to also work together as a team to achieve family financial goals.
- Disadvantage: Having a paternalistic money management style is great for promoting teamwork, but it can also inhibit progress if you’re not careful. Dealing with competing opinions can cause decisions to be left on hold. Some decisions ultimately should be made where the financial goals of the family are put above the agreement of everyone’s feelings. You may find yourself taken on an Autocratic tone to push things forward.
Democratic: The democratic money management style is all about empowerment. This style embodies teamwork, communication, accountability, and trust. In a family, this money management style shares the role of personal finance expert or money manager with everyone in the household rather than that brunt of the responsibilities falling to one person.
- Advantage: Everyone plays a role in this money management style. Responsibility is equally distributed, and it allows for the strength of others to shine and for everyone to feel as if they’ve contributed to the common goal.
- Disadvantage: This money management style relies heavily on trust and communication. If one person in the family or on the team is unable to fulfill their duties, it can cause issues for everyone else. For instance, when the family is working together to stick to a budget, one person’s excessive spending can cause everyone to become derailed. Keep in mind some may not be ready for the amount of responsibility that this type of money management style gives. In this case, a more paternalistic approach would be best.
By determining your money management style, you’ll be better inclined to win with your finances. Don’t be surprised if you find yourself to be a mixture of the three.
