How to change your relationship with money

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Lack of respect, anger, frustration, shame – these are just a few signs your relationship is on the rocks. But it’s not with your significant other we’re talking about here: It's with your money, one of the most important relationships you have in your life. And unfortunately you can’t just up and leave when things get tough.

Our relationship with money is partly ingrained in our emotional DNA; how we feel about it and our relationship with it often comes from our parents. So if they had a fraught relationship with money, chances are you will too; whether it’s taking on too much debt or not taking care of the money you have earned. Those negative spending patterns in your life were likely in place long before you got into debt. But these patterns can be broken. Even making just a few positive changes in your financial life can have a huge, positive impact on your overall sense of well-being and personal freedom. It can free up your mind to focus on the future, rather than staying stuck in the past.

As we start a new decade, let’s commit to changing our relationship with money in 2011 by taking these positive steps forward:

1. Create an honest inventory. If you’re in debt or unhappy with your financial situation, stop putting your head in the sand. Create an inventory of your financial health, for better or for worse. Add it all up. How much do you owe and whom do you owe it to? What do you spend your money on every month? The latter takes a bit more time to determine because it means writing down your spending habits for a few weeks. But it will give you a pretty good picture of how you're spending your money and whether or not your spending habits are actually meeting your needs or goals (For example, is that $100 a month latte habit stopping you from doing something more meaningful with that money?).

2. Accept the past. You might not be proud of your credit history but if you haven’t already done so, check your credit rating. This is especially important if you have a habit of paying your bills late or have been in trouble with a creditor in the past. A poor credit score can stand in the way of reaching your future goals. It can prevent you from getting a credit when you need it for big life steps like buying a house or starting a business. The good news is you can fix your credit score over time with some discipline.

3. Focus on the future. You’ve run up a lot of debt in the past but don’t let that stop you in your tracks. You can move forward by coming up with a plan to deal with your debt in the coming months and years. Set aside money every month to pay your debts. There are lots of tools and resources online to help you do this. A couple of good ones are: Credit Canada (they also have a budgeting tool which is good) and  The Financial Consumer Agency of Canada has a credit card payment calculator. By building a debt-free future now, you can really begin to plan for the future and any financial goals you might have (travel, a house, a career change?).

4. Treat your money with respect. For 2011, commit to paying your bills on time and in full. Why waste money on interest payments or jeopardize your credit rating because you haven’t made bill payment a priority? Also, make sure your financial institution is treating your money right: What interest rate are you paying on debt? What interest rate is your bank paying you on your savings account and what are you being charged for transactions? Can you get a better deal elsewhere? Do some research and find out. Even taking just 30 minutes a month to sit down and review your finances and pay your bills can make a huge difference in improving your relationship with your money.

5. Let go of stuff. How cluttered is your home? Is it crammed with stuff you never use or wear? Are your closets so packed with clothes and shoes that it's difficult to find anything? These are signs your life is weighed down by stuff; things you have spent your hard-earned money accumulating and yet never really use or appreciate. Start the new year by clearing out all the clutter from your home and streamline your spending so that your life is free of future clutter. This means putting up clear boundaries around what you consider to be a necessity and what you can leave behind in the store.

6. Be generous. A recent report found that Canadians donated 0.73 percent of their income, less than half of what our American neighbours gave. Had we matched the donations of our friends in the US, Canadian charities would have had an additional $8 billion that year. So give what you can – even donating a little can help make a difference and help you appreciate your own good fortune.

Caroline Cakebread is a Toronto-based financial writer and editor. She’s also a recovering academic and the mother of two kids. Check out her personal finance blog for Chatelaine Your Money.