The term “dysmorphia” is commonly applied when someone’s brain creates inaccurate perceptions about their body or appearance.
But more recently, the word’s usage has widened. “Money dysmorphia” describes a condition that usually leads you to think you’re wealthier than you are, resulting in overspending.
Conversely, it can also make you believe that you’re poorer than in reality, leaving you unable to enjoy your money in the here and now.
Keep reading for a look at how money dysmorphia could affect your finances.
Worries about money dysmorphia are growing
According to Sky News, searches for the term “money dysmorphia” have climbed by a staggering 136% over the past year alone, with a rise in the condition leading to unhealthy spending habits across the spectrum.
Although not a medical diagnosis, money dysmorphia can nonetheless be debilitating, leading to anxiety, panic and insecurity, resulting in an individual becoming preoccupied with their finances.
The Independent recently reported on a CEO who took his former employer to a tribunal, declaring he was unable to live on his six-figure salary when expected bonuses were not forthcoming.
The tribunal was unsuccessful, but the sense of panic and fear he experienced could demonstrate an example of money dysmorphia, leading to the employee thinking he was much poorer than he actually was.
Research from HSBC also found that most Brits typically underestimate their earnings by 30%, with 9 in 10 workers earning £100,000 or higher still not considering themselves well off.
Money values are often shaped by our upbringing. If you come from a family which was constantly struggling financially, say, you may go through life with a fear of losing everything, even if you’re earning a steady income.
“Lifestyle creep” can also impact your viewpoint on wealth. It could see your outgoings creeping up alongside your income, as items previously deemed a luxury move into the “necessities” category.
Here are five simple budgeting techniques to help you feel more in control of your money.
1. Keep track of your income and outgoings
Budgeting can be as simple as a spreadsheet to tally up your monthly income and outgoings. You’ll get a good idea of your regular monthly expenditure, and establish how much spare cash you have left over once you’ve paid all your bills.
It can also highlight any areas for potential savings, such as forgotten subscription services or an overabundance of meals out.
2. Apply the “50/30/20” rule
This principle helps you to allocate your monthly income across three distinct categories.
- 50% goes towards essential household expenses such as bills, fuel, and food
- 30% is for “extras” that are nice to have, like holidays, meals out and theatre or concert tickets
- 20% is put aside for the future, either in a pension fund or other investments.
The important thing here is to consider your “future self” first. Of course, your necessities are just that, and need focus, but don’t give too much weight to luxuries while neglecting your pension.
Being diligent with your 20% will be hugely beneficial when retirement arrives, and not paying this enough attention could leave you constrained during your life after work.
Remember, the rule might be 50/30/20, but the priority is 20/50/30.
3. Don’t compare yourself to others
Keeping up with the Joneses is not your priority. It can be easy to look around and see luxury and wealth, but you don’t know others’ circumstances. Your neighbour might have a new car but be saddled with years of debt to pay for it.
Equally, certain products and services have shifted from luxury to everyday in recent years, such as takeaway coffee and on-the-go food. Your colleagues buying a hot drink and lunch every day will be racking up expenses.
Keep your eyes on your own set of circumstances and individual aspirations.
4. Enjoy your retirement… you’ve earned it
There comes a time when you can stop filling up your pension pot and start drawing funds from it.
Having a clear financial strategy for your retirement can help you decide how to spend your money. Perhaps you’d like to travel more, buy a new property, or spend more time with friends and family.
Talk to us about creating your own individual plan in line with your retirement goals.
5. Keep an eye on the long term
Your retirement plan will also ideally have some contingencies in it for anything beyond your expected expenditure. This includes having an emergency fund when life throws the unexpected your way, and considering potential later-life care funding.
You want your pension pot to provide you with your dream retirement while at the same time including a buffer for these eventualities.
Get in touch
Budgeting in retirement is always a juggling act, but money dysmorphia can make it harder to balance. We’re on hand to help.
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your long-term financial plans.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
