The Costly Relationship Between Your Emotions and Your Money
Kathy Longo, CFP®, CAP®, CDFA® Thursday, 08 November 2018
How we perceive success, happiness, finance, and the experiences that shape us influences how we spend and save money. As I wrote about previously, understanding your money story and your emotions about money can remove some of the barriers that get in the way of allowing you to make level-headed financial decisions.
There will often be emotions surrounding money. The key is to separate the emotional from the rational, in order to more clearly identify your true goals and make better financial decisions. There are four common emotions that typically drive financial decisions: fear, responsibility, excitement and sadness.
When we understand the powerful influence, these emotions can have over our spending decisions, we can practice greater control over our choices in those moments of emotional weakness or temptation.
For me, after examining my own history and story with money, I’ve come to realize that many of my financial decisions are driven by fear and responsibility. I fear that I will lose my financial independence and stability and feel responsible for making sure that doesn’t happen.
Take a look at each of these common emotional states and see if you can identify which of these tend to influence decisions regarding your money:
- Fear – This emotion stifles our ability to consider the long term. It can paralyze us to move forward, and it can cloud our judgment and cause us to make decisions out of perceived necessity rather than choice.
- Responsibility – Feeling responsible for your finances is a good thing, in moderation. Some people use this emotion to set a budget, monitor spending, and work to build a nest egg for the future. Others feel limited in their ability to spend money because they feel responsible for making sure parents and children have the health care or resources they need, neglecting to spend on themselves. Putting too big of a burden on yourself to take care of others can limit opportunities to save for retirement or enjoy the present.
- Excitement – When money begins to accumulate, and you have expendable income, there are several things that can be done with it: you can save it, spend it, share it, or invest it. Some people get excited by the prospect of spending money and end up overspending. They don’t just overspend on frivolous purchases; they sometimes overspend on seemingly practical investments. While excitement causes some to overspend, it causes others to over-save. Some people love watching their hard-earned dollars accumulate and grow. However this, too, can lead to poor financial choices.
- Sadness – Sadness due to money problems can be debilitating. Sadness from other life events can impact financial decision making as well. It can prevent individuals from making any decisions whatsoever about their financial future. Grief can also cause people to make illogical financial decisions. Sadness frequently affects financial decisions during difficult life transitions such as divorce or death.
If left unchecked, fear, responsibility, excitement, and sadness can perpetuate financially disastrous behavior. Recognizing this and taking responsibility for the choices you make can help you make smarter choices that won’t create negative long-term consequences.
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.