What Exactly is Money Dysmorphia?
According to a report from Sky News, online searches for “money dysmorphia” have increased 136% in the past year.
This term describes the disconnect between your perception of your financial situation and the reality.
For example, you might feel that you are far less financially secure than you actually are, and this could lead to a feeling of falling behind. Alternatively, you could overestimate how wealthy you are, and this may affect your decision making.
Research reported by Yahoo Finance found that 29% of people experience money dysmorphia and there are several reasons for this. Your childhood and the attitudes towards money you experienced growing up could affect your mindset as an adult. The cost of living crisis could also increase worries about financial problems as you’re constantly exposed to headlines about rising prices.
Whatever the cause, if you suffer from money dysmorphia, it could affect your finances in several ways.
Read on to learn more.
How money dysmorphia could cause unnecessary stress
Money dysmorphia and comparing your situation to others can lead to negative feelings about your own finances. This could be amplified by the fact we share so much of our lives publicly online.
According to the Independent, 25% of those surveyed said they felt less satisfied with their financial circumstances due to social media. This is because people typically present an edited picture of their life online, which only shows their successes. As a result, you could feel that others are in a better financial position than you and underestimate your own wealth and security.
When this money dysmorphia leads to a feeling of falling behind, and you believe that your financial situation is worse than it is, you might feel unnecessary stress. For example, you could worry that you won’t be able to save enough for retirement or reach other financial milestones, despite the fact that you’re on track to achieve your goals.
This stress could cause you to make cutbacks in your spending and increase contributions to your savings unnecessarily. Ultimately, this could mean that you sacrifice your quality of life now.
Money dysmorphia could be equally problematic in retirement. Naturally, you might be concerned about spending your savings too quickly. But if you underestimate the size of your retirement pot and constrain your spending as a result, you may fail to live your ideal lifestyle even though you could afford to.
We can help prevent these problems by regularly reviewing your financial plan and tracking your progress towards your long-term goals. During retirement, we’ll assess the size of your savings pot and review your budget with you, so you have an accurate picture of the level of comfort you can afford.
With the benefit of our expert insights, you might see that you’re in a better position than you thought and don’t need to be concerned.
You may fall into unsustainable spending patterns
Money dysmorphia can work the other way and cause you to overestimate your financial position. When this happens, it’s easy to fall into unsustainable spending patterns as you take it for granted that you’ll be able to reach your financial goals whatever happens.
Unfortunately, if you continue down this path, you might not contribute enough to your savings. This means that when you reach retirement, it could be difficult to achieve your desired lifestyle.
When you are in retirement, this could cause you to spend too much – especially in the early years – meaning your assets are less likely to be sustainable in the long-term future. This could mean having to make cutbacks in future years or in the worst case, facing the prospect of running out of money.
That’s why it’s important to regularly review your budget and consider how much you need to contribute to your pensions and savings for the future. We can support you here by using cashflow planning to track your progress and determine a suitable level of contributions or withdrawals, based on your goals.
It could be difficult to make reasoned decisions about your investments
Money dysmorphia could also make it more difficult to make reasoned, objective decisions about your financial plan.
For instance, when deciding on the investment strategy you want to adopt, your own perception of your financial situation could make a significant difference.
If you see yourself as far less secure than you actually are, you might be overly cautious. This could make it more difficult to achieve meaningful growth. You might also be reluctant to increase your contributions to investments.
Instead, you may put more disposable income into emergency cash savings so you can access that wealth quickly and manage perceived financial challenges. Unfortunately, this could make it more difficult to grow your wealth in the long term.
On the other hand, if you see yourself as much wealthier than you really are, you might be more likely to expose yourself to a large amount of risk, meaning you could experience significant losses. Again, this could make it more difficult to reach your long-term financial aims.
The benefit of working with a financial planner is that we can help you determine what level of growth you need to achieve to fulfil your ambitions in life and live the retirement you want. We’ll then support you in building a well-balanced portfolio that is right for your unique plan and tolerance to risk.
Get in touch
If you want to build an accurate picture of your financial position, we can help.
Email hello@fcadvice.co.uk or call 0333 241 9900.
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.
The Financial Conduct Authority does not regulate cashflow planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.