Money dysmorphia is a term used to describe a mismatch between a person's financial situation and their perception of it. It can occur on both sides of the spectrum, meaning that a person may see themselves as having less means than they really have or more means than they have.
 
When it comes to a person who has more means than what they perceive themselves to have, it may be tempting to think that this is a good thing. If a person thinks that they don't have money when they actually have more than they will ever need, that's great; they'll keep saving more and continue growing their wealth. But this isn't always a great thing. The accumulation of money as an end in and of itself lacks purpose. Suppose it leads to behaviours such as neglecting self-care for oneself or others who rely on them, missing on experiences and time with loved ones out of fear of spending, or working for no other reason than being afraid of running out of money when you have more than enough for your financial security. In that case, the money dysmorphia has crossed into problem territory. For instance, you might find yourself constantly checking your bank balance, feeling anxious about spending even on necessary items, or feeling guilty when you do spend money.
 
On the flip side, money dysmorphia in which people perceive their ability to sustain a level of spending that is beyond what they can afford, leads to debt, stress, and more significant issues like anxiety, depression, work-related challenges due to stress, and relationship conflicts over money.
 
How Does This Happen
 
Money dysmorphia can come from various sources. The following are some ways it can arise (though this is list is by no means exhaustive):
 
1. Formative experiences: Someone who experienced poverty or other financial traumas growing up may develop certain beliefs about their financial safety. When such individuals attain wealth later in life, they may continue to experience the same fears and anxieties around their financial safety that they experienced growing up. Similarly, if someone had a relatively affluent upbringing but in adulthood has less personal wealth than they were accustomed to growing up, such individuals may have challenges attenuating their lifestyle to their economic reality; their lifestyle perceptions and expectations were set in childhood, and it takes conscious recalibration to learn how to live within a new reality, and it's challenging for many.
  
 
2. Coming into a lot of money quickly, like a sudden appreciation in equity compensation, inheritances, and business exits, creates such a jump in lifestyle possibilities that easily creates confusion around the ceiling and sustainability of those possibilities and leads to overspending due to the sudden shift. For others, they may have trouble believing it's true and maintain extreme frugality out of fear of wasting it or losing it all.
 
3 People often mistake their gross income for what they can actually spend, forgetting about taxes and deductions. I see this frequently with self-employed individuals and people who receive large annual bonuses. It's a very common trap to pre-spend the yearly bonus based on the gross (pre-tax) amount. Additionally, mental accounting and internal dialogue can sometimes cause folks to pre-spend the annual bonus several times over.
 
What Can We Do About It?
 
Here's what you can do to tackle money dysmorphia:

 
1. See if you can identify its origins and when your actual circumstances started to diverge from the image you have of your finances in your head.
 
2. Identify which things in your life seem to exacerbate this. What about things that help you have a more accurate perspective of your financial reality?
 
3. Identify if you need support tackling this; if so, try to identify the nature of the support you think you need. Is it support around getting a clear sense of your financial picture and what is genuinely supportable? If this is the case, then the type of support you're looking for may be on the planning side. Or, do you already have a clear idea of your financial picture, but how you feel on the inside doesn't match the numbers, and you feel disconnected from the numbers? If this is the case, then the support you're looking for may be more therapeutic in nature.
 
Recognizing and acknowledging money dysmorphia is the first step to reclaiming control over our financial well-being. By identifying the origins and manifestions of this dysmorphia and understanding the triggers, we can take proactive steps to realign our perceptions with our actual financial circumstances, and empower ourselves to lead more financially balanced and fulfilling lives.