Series 2 Episode 14 – How do money habitudes influence effective investment behaviour?

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This week we’ll look at how essential it is to think about and understand  your personal emotional connection with money, and how it can influence your behaviour when you invest. This is so crucial because taking planned, intentional action to prevent prevalent behavioural traps that could lead to poor investment choices is a enormous factor in being a good investor.

We all make choices as human beings that are not necessarily rational because we are motivated by emotion.

How many times have you bought, for example, another course you probably didn’t need when attending an event because you’re motivated by the emotion that the event brought up in you? Maybe the event made you feel you needed to be better at something, or in a specific area that you’re not as accomplished as others.

These emotional traps are prevalent – we’re human and not all of us act in a logical, reasonable manner. Thinking of investing, these behavioural traps are often referred to as ‘investing biases’ – and are 100% emotional.
But, the excellent news is, you will be able to take that intentional, planned action to prevent the traps once you know these biases – and yourself – better.

Understand your money habits

With many of my clients, I work together with them on understanding their personal spending profile. A spending profile can tell us a lot about our money relationships and how we may act when we invest.

You find, when you dig into your spending profile, that you have created things called money habits. We all have them, and there is no doubt that they have a huge impact on our lives.

Lots of things like our family, colleagues, society, faith, our character and, of course, our experiences shape how we feel about money. And this implies they are deep-rooted and subconscious for the most part.

In my work I use the Money Habitudes software which has been designed by a very clever and rather wonderful lady called Syble Solomon. We’ve spoken on the phone many times debating money psychology!
In the Money Habitudes work, there are six money habitudes, and we all have a combination of some, or all, of them.

Habitudes = a combination of habits and attitudes. In other words, how we automatically feel about money and how we automatically react around money.

The issue with budgeting or setting up economic products is often that our behaviours have remained unchanged. You need to discover the emotional side of our behaviours and feelings around money to be more comfortable with money and create real wealth and financial happiness.

The 6 different money habitudes are: 

  • Spontaneous
  • Planning
  • Security
  • Carefree
  • Status – and 
  • Giving

They can really affect how effective we are when we invest when these are coupled with investment biases.


I understand a lot about this, because it’s one of my most powerful cash habits.

It implies what it says–I used to get a thrill purchasing something totally unplanned. And often it would be something I would never have even considered before purchasing. The thrill is great, but the downside is, I can spend money that I don’t have if I don’t handle this habit. So, either I go into debt, or I end up sacrificing my long-term objectives because my savings have been blown away.

Money habits can be strongly linked to a number of investment biases. For everyone they won’t be the same, but I’m going to use an example to give you an idea of what I mean ;

Two investment biases I believe go hand-in-hand with a Spontaneous money habit are the self-attribution and illusion of control biases. This merely means that you are truly over-confident. You believe that you every investment achievement is absolutely down to your own actions. If things go wrong, it’s someone else – or the fault of something else. You also overestimate entirely your power and impact over things that are nothing to do with you.

It implies you can take far more risk than you should from an investment perspective. If you take too much risk, you will probably end up feeling extremely stressed and more out of control ironically. Because you are not getting the outcomes that you were expecting.

Just like spontaneous spenders.

It’s like purchasing a beautiful pair of high-fashion jeans without trying them on. You’ve persuaded yourself that they’re going to fit you because on the hanger they look incredible. But if you’re really thinking about it, you know the low-rise skinnies don’t do anything for your body shape.

And did you need another pair of jeans? Not really.

So, with investment, all of this comes back to staying true to your objective – what are you investing for? Have you placed your cash in a place or fund that will help you accomplish your goal?


This means we’re clear on our financial intentions.

That’s good, but sometimes our focus on the plan implies we’re not open to fresh possibilities and we might not consider things we’re not used to. It also implies that we may have excellent intentions but do not go through with them.

I think this habit links closely with an anchoring – or confirmation – investment bias. This means we stick firmly to what we believe, and we look for examples that support our beliefs, and ignore stuff that doesn’t.

The danger here for you is that you are likely to adhere to a restricted set of assets and not diversify enough. In other words, you put all your eggs in one–or too few–baskets. Ask yourself; do you really want to pass up the opportunity to invest in something new with a lot of potential, that could be a better fit than where you’re invested just now?

This is like restricting yourself to the combo of shift-dress and kitten heel that you’ve been wearing since the beginning of your 20s. Because it’s turned into your trusted look. But the issue is, some fresh looks may need to be tried; mix it up a bit and experiment.

The investing message here is; do your research and make sure you’re aware of all your options.


The upside with this habitude is often you are focused on staying safe and feeling secure.

The problem is, you may avoid risk and save so much, you don’t really enjoy living in the moment. Or you just stick with cash. I associate three different investment biases with a security money habit.

  1. Loss aversion. You’re so keen to avoid losing the money you’ve invested, that you don’t take nearly enough – or any – risk.
  2. Familiarity – A familiarity bias means you stick with – and limit yourself – to what you know.

    So, like before, you don’t spread your money across enough different investments to properly diversify
  3. Hindsight bias. Hindsight is a wonderful thing – and it’s definitely true with investing! If we had a crystal ball, we’d all be trillionaires – but life’s not like that.

    The problem is, if start believing we should have been able to anticipate and avoid losses, then we get confused or massively worried about our own abilities – so we try to avoid risk.

All this is due to anxiety about the perceived investment risk.






How many times have you been waiting for change because you are afraid that the worst might happen? Failure to try is worse than trying and failing. All you have to do is say yes and work out how later!

So with investment risk, if you don’t take some investment risk, there is actually more risk to your long-term economic well-being. A lof of this comes down to confidence.

Understanding money habitudes and being a successful investor means taking intentional action to avoid behavioural traps that lead to bad investments.


The carefree money habit also has ‘lack of confidence’ as a downside – But that’s more because you don’t just believe it’s essential to know how to manage your cash. Money might not have been a serious thing growing up. Or maybe it’s never been a concern for you, even if you’re frustrated with how your finances might get out of control.

If we use another analogy of clothing, many of us wear baggy or way-too-comfy clothing to mask problems with body confidence. Or perhaps we’re not so worried about what we’re wearing. You don’t have to let your lack of confidence restrict the future gains you can create with your investments.

Do your research. And use the tools and guidance that’s available out there. Start small and stick to some simple rules and you’ll be amazed at what you can achieve.


We are generous and we like stuff that is costly.

We’re definitely a brand follower, using our fashion analogy, and wouldn’t dream of picking up an outfit as we go around Asda. But attempting to keep up with the latest fashion can be stressful. And, we likely purchase items for the sake of appearances – not because we need it, or because it suits us.

The trend-chasing investment bias is similar. This implies that we make the error of believing that an investment will do well in the future just because it has done well in the past.

But the reality is, a wonderful performance hardly ever lasts. It’s like sticking to a specific brand or retailer just because it’s been top in the stakes of fashion. I’m thinking of M&S here. It has been the place to get our undies for decades. And a third of us are still buying our own there.

But M&S profits are falling, and continuing to appeal to everyday females is a real struggle for the brand. Simply, there are more appealing alternatives out there now.

You’re likely seeing a pattern arise here. By knowing how they can have an adverse effect on us, we can address our money habits and investment biases. And then taking some of those deliberate, planned actions I talked about earlier. And they really come down to three main things:

1. Remembering your goals. Adjust them if things change in your life, but the point is – know what you’re investing for. Giving every pound a purpose.

2. Know how much investment risk or uncertainty is right for you and your goals.

3. Diversifying your investments. Make sure you don’t limit your options and have a good spread of different types. Stick with a core basket of investments and build the sexy stuff later. 


I haven’t mentioned the habit of giving money yet. This is not because it’s the least important – far from it. But this is because the type of investment you choose is more likely to be affected than how you choose them.

Let me clarify; the giving habit means that you are likely to have powerful ethics and integrity and maybe more likely to save for others before yourself. For females, this is a very prevalent habit. Placing others before ourselves, and then we often connect emotions of guilt and shame with money.

This implies you may want to avoid investing in any businesses or funds that have any connection with sectors such as tobacco, fossil fuels or arms. The excellent news is, by selecting things called’ ethical’ or’ socially responsible investments’ there are lots of ways you can do this.

These are company shares or funds that consider social or environmental good as well as making money. You can find out more about these in episode 8 of the series when I spoke with Rebecca Jones from Good With Money.

Exactly the same rules of thumb apply – understand your objectives, risk behaviour, and diversify. When you make your investment decisions, this becomes just another thing to consider.

Understanding your money habitudes

I hope this has been a useful introduction to understanding some of the behavioural habits and biases that can affect investment behaviour.

As I’ve said many times–money creates an emotional response in all of us, and our reactions are highly personal. But as long as you ‘re aware of the potential pitfalls–and stick to our simple rules of thumb, you can enjoy plenty of success!

If you would like to find out more about your own personal habits and attitudes around money and how you can build a plan that you actually stick to, you can find out how you can work with me by heading to my brand new website


Catherine Morgan

Catherine Morgan