Your Inner Money Manager

by Matt Bell

Why do we do what we do? If there were easy answers to that question there would be no need for psychologists, philosophers, or country & western singers. Limiting the inquiry to financial matters doesn’t make the question much easier. Sure, society seems to pull us in a certain direction; and observing what others do—the very real phenomenon known as “keeping up with the Joneses”—impacts our financial choices. But there’s another often overlooked influencer over all that we do that’s much more personal, much closer to home—our temperament.

The study of temperaments dates back over 24-hundred years to Hippocrates. Why one person tends toward moodiness while another is perpetually upbeat has much to do with temperament. The same can be said for explaining why one person tends to hang onto money while another is always broke.

According to the book, Smart Money, our temperament is the combination of traits we were born with that subconsciously directs our behavior. And each of the four temperaments—melancholy, sanguine, phlegmatic, and choleric—comes with a package of strengths and weaknesses.

If you don’t know your temperament, consider the following lists of characteristics.

List one: Perfectionist, analytical, planner, enjoys art and things of beauty, indecisive, introspective, creative, loyal, precise, and worrier. If many of these characteristics describe you, you may be a melancholy.

List two: Talkative, persuasive, impulsive, loves people, unorganized, fun loving, restless, colorful, can be late, enthusiastic. If this is your list, you may be a sanguine.

List three: Laid back, peaceable, dependable, efficient, unmotivated, orderly, saver, slow to decide, introverted, diplomatic. If you were nodding in agreement as you read these characteristics, you may be a phlegmatic.

List four: determined, impatient, likes control, goal oriented, insensitive, risk taker, sarcastic, opinionated, practical, decisive, and argumentative. If this list resonates with you, you may be a choleric.

Did you see yourself in one of the lists? It’s likely that you have characteristics from more than one list; that’s because no one is 100% one temperament. But most of us have one primary temperament that tends to guide our behavior more than any other.

Now, with the help of Smart Money authors Jerry and Ramona Tuma, let’s take a closer look at each temperament, with a focus on each one’s financial tendencies.

Melancholy
Find a checkbook balanced to the penny and you have very likely found a melancholy. Usually introverted, melancholies tend to be very self-disciplined, detail-oriented planners. Not surprisingly, this is the temperament with the greatest natural financial strengths. For example, melancholies are the type most likely to develop and follow a budget.

Due to their analytical nature, melancholies will spend a long time making purchase decisions, checking all the options. But when they finally do make a choice it tends to be a good one.

On the downside, melancholies are the type most likely to be paralyzed by fear and, as a result, may be overly conservative in their investments. Melancholies also tend to love beauty, which can sometimes lead them to overspend on things like gourmet food, fine clothing, books, stereo systems and artwork.

Sanguine
If you’re looking for a free meal and a fun conversation, go to lunch with a sanguine. They are the last of the big spenders. Plus, their happy-go-lucky disposition often makes them the life of the party.

Sanguines can be very generous, often helping to support numerous charitable organizations.

On the downside, sanguines can be impulsive, buying what they want when they want it. High on their list of what they want is approval, which they seek through trendy clothes and flashy cars. If there’s a red car in the parking lot, chances are it belongs to a sanguine.

Sanguines are not planners, so they do not take naturally to following a budget; they are too impulsive, too averse to details, and can always find something more enjoyable to do.

Phlegmatic
Phlegmatics are the great relaxers. Calm, easy going, and likeable, phlegmatics know how to keep a steady job. They also know a thing or two about living within their income. These are the savers—of money, of clothes, and of stuff. And, they excel at bargain shopping.

Phlegmatics’ desire for peace means that if they get in trouble with their bills – not unusual since they often wait until the last minute to pay them – they may avoid talking to bill collectors. They are the type most likely to have had their utilities shut off.

Since they rarely get around to budgeting, it’s a good thing that they hate to spend, only buying what they think they need.

Choleric
Cholerics are the movers and shakers—the type A’s who like to be in control. They can be demanding, sometimes requiring an item-by-item accounting of spending when their spouse returns from a shopping trip.

Since cholerics like to do everything themselves, their spouses are often left ill equipped to handle finances. Their tendency to want to get things accomplished as efficiently as possible can lead them to fall for get-rich-quick schemes. Their tendency toward self-sufficiency can leave them avoiding wise counsel.

Cholerics, like sanguines, just buy what they want because planning and following a budget take too much time. Cholerics see shopping as a waste of time and try to get that chore done as quickly as possible.

Did some light bulbs gone off as you read about the financial tendencies of each temperament? If you’re a sanguine, you may have gained new insights into why that intended window shopping trip to the mall last month ended up adding $2,000 to your credit card balance. If you’re a choleric, you may now understand why your first reaction upon seeing your spouse in a newly purchased outfit was to ask how much it cost.

The good news is that the negative tendencies that come with each temperament can be managed. Next month we’ll focus on how to maximize the strengths of each temperament while overcoming the weaknesses.