We all strive to make rational financial decisions, to control our costs in the present and increase our future financial gain.
However, what would happen if we allowed our emotions to take the lead in money matters? We have a look at the consequences, and we consider what you can do to improve the situation.
Tip: If your emotions have landed you in debt, a consolidation loan could assist you.
Money is an emotional matter
According to Lindie van Gass, a certified financial planner who runs personal finance blog Bank Beter, emotions play a role in most, if not all, decisions we make.
“The important thing is to be aware of our biases and ensure we take them into account when making important decisions,” says Van Gass.
According to Yehuda Kay, head of short-term insurance and medical aid at Octagon Financial, becoming aware of the link between emotions and money can help create better choices in challenging financial situations.
“Money is personal. It is a significant part of our subconscious survival instinct, conjuring up a host of emotional reactions to our financial situations,” says Kay.
How do emotions impact your finances?
It’s undeniable that certain emotions can ignite a financial response in us. Kay says the key emotions to watch out for are:
Anger makes us act impulsively. This means we are more prone to impatient, rash decisions and taking greater risks. This can be dangerous if you are making investments or purchasing decisions, as these can have a big impact on your financial future.
A lot of financial guilt revolves around spending too much or too little. This can make you second guess yourself, undermining your financial confidence. You could also feel guilty about your wealth. While this can lead to philanthropy, it can also mean giving away more money than you can afford.
Anxiety can trigger an avoidance response, preventing you from identifying issues and taking the necessary steps to address your financial situation. It may also make you hoard money, and you may feel as though you never have enough, or it could make you work incessantly to make more money.
Experiencing an unexpected windfall – be it from a tax rebate or another source – can create an inflated idea of your finances, resulting in you spending beyond your means and, in the end, not actually benefiting from this additional revenue.
If you feel inferior, you may overcompensate for not measuring up to the wealth of others which can translate into buying expensive items that you can't afford. This can get you into debt as you accumulate luxury assets that are beyond your budget, in order to keep up appearances.
Greed makes you too attached to possessions and money. It can leave you feeling empty and dissatisfied since, no matter how much you have, it will never be enough. This perpetuates a vicious cycle of needing more and having to increase your earnings in order to satisfy this bottomless pit.
People with and without money can experience fear about their finances. Wealthy people may be scared of losing their money, making them very frugal, watching every cent, and being unable to enjoy their money. Financial fear can cause feelings of hopelessness and helplessness.
How to take control
“While these money emotions can be uncomfortable and can impact your ability to make clear-headed decisions, it is not all doom and gloom,” says Kay.
“Interestingly, we can use these ‘negative’ emotions as a compass to point us in the direction of what we need to address in our lives in order to feel more fulfilled and accomplish our goals,” he explains.
Kay suggests taking the following steps to avoid letting emotions drive your finances:
- Instead of focussing on the external triggers, which cause negative emotions, we can look inside ourselves and set our own financial goals, rather than living up to anyone else’s standards.
- Understand your belief system. Beliefs are often created from our parents’ attitudes towards money. Some parents may be savers and budget their spending, while others may be fearful and never have sufficient money. Examining your financial upbringing can help you become aware of your financial belief system. This may be holding you back from getting the most out of life. Once you are conscious of this ‘script’ you are more empowered and you can choose to change it.
- Look for ways to reduce your anxiety by consulting a financial adviser to assist you in maximising your cash flow.
- Be aware of your emotions when you deal with money so that you can have greater insight into how they are impacting your actions. This can also be achieved by listing any issues related to finances and your corresponding emotions.
“While money is a significant part of life, keep in mind that your money doesn’t reflect who you are or what you can do. Becoming aware of your emotions and how they impact your actions is the first step in achieving financial wellbeing,” says Kay.
Nothing is scarier than being overindebted. Start with debt consolidation today to sort it out.