Emotions can interfere with even the most successful people’s decision-making processes. Warren Buffet, for example, admitted that his emotional attachment to IBM had clouded his judgment back in the day. As a result, he failed to recognize the changing dynamics of the technology industry and took a huge loss in 2018.
If emotions got to Warren Buffet, it’s a clear indication that they can affect anyone. However, the good news is that there are ways to put money over feelings and cultivate good emotional habits. And this post will provide more tips on how to do just that.
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The role of emotions in shaping financial decisions
Whether you like it or not, feelings play a significant role in how you spend money. Studies have shown that people are more likely to make decisions based on emotions rather than logic or rationality. And this is especially true when it comes to money. Emotional responses to financial situations are often instinctive and automatic, and you only realize that after the fact.
For example, have you ever made an impulse purchase just because you felt good at the moment? Or have you ever held onto a stock for a while and sold it out of panic the second it dropped? These are just a few examples of how emotions can influence your financial decisions, sometimes leading to poor outcomes.
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Negative emotions around money and how to overcome them
Money and emotions are often intertwined, and negative emotions, in particular, can cause people to make financial decisions with long-term consequences.
Anxiety and fear
When you are anxious or fearful about your financial situation, you may feel overwhelmed and unable to make decisions at all. Or you lean in and make impulsive or irrational choices trying to alleviate your anxiety or fear.
What you can do instead is confront the source of your fears and identify concrete steps you can take to address them. For example, if you are anxious about opening a trade, take the time to educate yourself about the market.
Anger and regret
Feeling anger or regret often comes from missed opportunities or bad trading decisions. You’re a human, so it’s easy to fall into the trap of thinking “shoulda, woulda, coulda”. But dwelling on past mistakes prevents you from moving forward (not to be confused with learning from your mistakes).
Instead, why don’t you take a step back and assess your current financial situation? If there are specific actions you can take to improve it, focus on them.
Shame and embarrassment
You may feel ashamed about not having a stable financial situation, struggling to pay bills, or accumulating debt. In the context of trading, losses and unsuccessful trades can be sources of shame and embarrassment. It can be intense that you might avoid taking any action at all, only making the situation worse.
Researcher and author Brené Brown has found four things that help alleviate shame: personal vulnerability, critical awareness, reaching out, and speaking shame.
Envy
Envy arises when you compare your financial situation to others and feel that you are falling behind. But it doesn’t stop there and leads to resentment, inadequacy, and even self-doubt.
How to shake off a sense of frustration when seeing others enjoy the fruits of their labor or financial success? Remind yourself that everyone’s financial journey is unique. Also, reflect on what you’re grateful for in your life, whether it’s your job, a roof over your head, or a supportive partner.
Are all emotions and feelings bad?
No, it’s not all bad news. Positive emotions like contentment, gratitude, and joy can encourage you to save and invest for your future. For example, feeling content with what prevents you from overspending on unnecessary items. Feeling grateful for your financial stability can motivate you to continue making responsible money decisions.
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Remember, saving money is not just about numbers and calculations; saving money is about emotion, too.
But it’s important not to let your emotions take over, no matter how positive they might be. There is a balance to strike between your emotions and your financial decisions.
More tips to cultivate good emotional habits about money
Here are a few other strategies to manage your emotions around money more effectively:
Don’t ignore how you’re feeling
Avoidance or denial won’t lead to anything productive. So, acknowledge how you’re feeling, even if it’s uncomfortable or negative, and ask yourself why you’re feeling a certain way about money. This will show the root of the emotion and give you insight into what financial decisions align with your values and priorities.
Recognize your emotional triggers
“As you start to recognize the pattern, you can practice putting in place interventions to start to shift it,” says Elisabeth Netherton, MD, a psychiatrist with Mindpath Health.
Everyone has different triggers that can cause negative emotions around money, such as overspending, receiving bills, or discussing finances with a partner. What are yours?
If you’re not sure, think about times when you’ve felt anxious, angry, or overwhelmed about your finances. And then recall what was happening at that moment. Only with that information in mind can you work on finding healthy ways to cope with them.
Reframe your triggers into productive behavior
By first changing the way you think about your triggers, you open yourself up to breaking unhealthy patterns.
If receiving bills triggers anxiety or stress, try reframing it as an opportunity to practice budgeting and financial planning. If it’s discussing finances with your partner, take this chance to communicate and work together towards shared financial goals.
Use emotions as an indicator to pay attention
This is a reminder that you’re not trying to avoid feelings or emotions at all times. The goal is to use your emotions in a constructive and positive way and let them point out the important things.
If you’re feeling nervous before opening a trade, ask yourself whether you can afford the risk. The answer can be affirmative, but it helps to ask.
Focus on what you can control
You can’t control the stock market, unexpected financial emergencies, or the behavior of other people. But what you can control is your mindset and habits. You can also control how you respond to your emotions — let them take over, ignore them, or pay attention to them while acting with intention and purpose.
Summary
When it comes to money management, emotions like anxiety and fear, anger and regret, shame and embarrassment, and envy, play a big role. Some can lead to a reluctance to take risks, while others result in impulsive purchases or investments.
But by mastering your emotions, you’ll not only improve your money management skills but also feel more confident when making future decisions. So why not take the first step today and start mastering your emotions!
Sources:
What is emotional spending and why do people do it? Verywell Mind
Money is emotional — but personal finance advice rarely accounts for that, Vox
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