One basic principle that can help everyone manage their finances better is understanding money is emotional. It was one of the very first lessons my father taught me because he knew I needed to be able to recognize when my emotions were interfering with my ability to make value-based decisions, thus slowing down or preventing goal achievement. Thanks to my father’s guidance, I have a very good grasp on my money emotions today and continue to teach the girls to recognize when their emotions are clouding their good judgment.
Everyone experiences emotions, both and good, and yet too few of us realize how they affect us financially. The truth is our emotional competence plays an instrumental role in our overall financial success, and our lack of emotional competence hampers many from building the life they want for themselves and their family.
Every single client I have worked with has wanted to grow their wealth and achieve goals, such as buying a new home, sending kids to college and retirement. Their first (and sometimes sole priority) is wealth accumulation. They assume a lack of investment knowledge or current market conditions are what prevents them from growing their assets. While those factors certainly can and do play a role, it is often their emotional competence or ability to make good, thoughtful decisions in times of high emotions or chaos that plays the biggest role in their ability to achieve their goals.
These are common emotions that we all feel at one time or another. There is nothing wrong with feeling these emotions because we are emotional beings. What you want to be aware of is how these emotions affect you and your ability to make good decisions with your money. Some emotions you may discover don’t have a significant impact on you, whereas others do. Once you are aware of which emotions affect you the most, you’ll be able to better identify and cope with your emotional triggers.
Fear is a very powerful emotion that both serves and hurts us. It can protect us from danger; it can also prevent us from trying something new. It causes some people to only see negative outcomes. Or stops people from saying “yes” to goals they have worked diligently to achieve, like retirement, because they are scared of the unknown. The best defense against fear is to admit that you are scared and ask yourself why. Once you shine a light on your fears, they tend to lose power as logic and good planning take over.
Retailer love boredom because many people cure it by shopping, whether they head to the mall in-person or go online. Some even go with the intention of not spending a dime and just plan to window shop or browse, but all too often, they pull out their credit card to buy something to help alleviate boredom or loneliness. Both are normal feelings but shopping doesn’t really solve the problem long-term. Instead think of better, more productive ways to occupy and fulfill yourself, such as joining an adult sports league or a book club to help socialize and meet others.
Anger can be a scary emotion. Many of us were taught that anger is bad. And certainly if it causes you to lash out or even turn violent, then your anger has become a serious issue that requires professional assistance. For most us, though, while anger is a normal response to something that upsets it, we tend to defuse our frustration or anger by treating ourselves to something. Anger (and disappointment) is one of the biggest fuels of an “I deserve this” mindset. When you find yourself saying (whether mentally or out loud), “I deserve this”, I encourage you to ask yourself if you’re really angry or upset instead. It’s okay to be angry or upset but buying yourself something is a short-term solution. Truly addressing your anger or frustration is the better answer.
Envy is one of those emotions that we don’t like to discuss. It paints us in a poor light, so we pretend that we’ve never felt envious of someone else. But I suspect almost every single one of us, myself included, has felt a pang or two of envy at some point in our life. What really matters is how we respond to those feelings. Many respond by trying to “keep up” or worse — out do. To turn the tables and make them envious of you. Some even go so far as to spend money on things they care very little about, just to impress or gain approval of others, leaving them with little money for the things that truly matter. It’s better to admit, even if just to yourself, that you are envious and use it to motivate you to work even harder to achieve your goals.
Life is busy, chaotic and often stressful. When we are pushed to make snap decisions in those moments, we are sometimes too exhausted or forget to make value-based decisions. We make the easiest decision in the moment, even if the long-term effect is negative. We need to be aware how our mental and physical state affects how we choose to spend our money. For example, instead of making the home-cooked dinner you planned (and bought the groceries for), you pick-up fast food instead. This doesn’t mean we can’t change plans or even that spending money to help alleviate some stress, such as hiring someone to clean your home, is bad. It’s not, provided it is a deliberate choice that aligns with your values and fits your budget versus a knee-jerk reaction.
We don’t always realize that positive emotions can have a negative impact on our financial health too. So how can happiness be bad financially? After all, isn’t money happiness something we all seek? I do believe money happiness is our ultimate goal. However, when we are happy, we sometimes leave logic behind and spend without thinking of long-term consequences, especially when we are celebrating good news. Think of the person who buys everyone a round of drinks because they got a promotion. Again, there is nothing with celebrating good news, just always make sure it is a conscious choice, not an impulse, and is in alignment with creating your ideal (and thus happy) life.
Every parent can likely relate to this one. We love our kids and we want to give them everything their heart desires. So we say “yes” to everything they want, whether we can afford it or not. Beyond the risk of entitled kids, you are also jeopardizing your family’s financial foundation, which subsequently puts your children who you love so deeply at risk. You should never feel obligated to spend money on someone to prove your love, whether it’s your kids, spouse, family member, friend or boyfriend/girlfriend. Yet too many of us equate love with spending. You need to be aware if you have this tendency AND if you have people in your life who take advantage of it. Real love is not only unconditional, it shouldn’t have a price tag either.
These are, of course, just a handful of emotions that affect our financial lives. Regardless of whether it is one of the above emotions or an unlisted emotion, this question can help you regain control, “Will this bring me closer to my goals or am I feeding an emotion?” This question has saved me countless times and can do the same for you as long as you answer honestly. Remember, there is no shame in feeling the way you do. Be honest with yourself and face your emotions head-on; they are not your enemy.
What are your emotional triggers? How do you recognize the signs?
Shannon
SHANNON RYAN, CFP®
Each of these seven emotional feeling give us the reason to use money to buy something. We can boil down to the word "entitlement".
This word can destroy many people financial situation because they just satisfy the immediate desire without thinking about the future result.
Enjoy your post.
- Stella