How Emotions Affect Your Finances

Money makes people crazy. No, that’s not just a catchy phrase, it’s actually true. Research has shown that our finances are more than just a numbers game. There are actually a number of things that can have a huge impact on how successful you are at reaching your financial goals, including your emotions.

Emotions have an effect on everything in our lives, and our finances are no different. It is always more difficult to make the right financial decision when your emotions are running high and you are tired, stressed out, or angry. But even positive emotions like joy can have a negative impact on your financial willpower. We tend to forget about how large an impact emotions can have on our finances, but today we’ll talk about 7 different emotions and how they might be sabotaging your finances.

Anxiety

Having anxiety when it comes to money is a huge self-sabotage. People who are anxious about money are typically worried they’ll make the wrong financial decisions, like getting back into debt or taking a huge financial risk. But in all actuality, avoiding all risk isn’t the best solution to help you build wealth. To maximize your wealth-building power you have to take some financial risks from time to time. The key is to be in control of your emotions rather than letting them control you and your decisions.

Fear

People who have been extremely broke or poor in the past often carry the fear of being in that situation again with them for their entire lives. The fear they have of being broke or not having enough (enough money, enough food, enough to pay bills, etc.) is a detriment. Most of the time these people end up wasting a lot of money on stockpiling goods they don’t even need just to help make themselves feel better. Instead of using their money to buy security, they should be putting that fear to use by making sure they have a large enough emergency fund in place to cover any situation that might leave them short on cash to pay for their needs.

Jealousy

The “big green monster” known as jealousy can have a huge impact on your finances. Feelings of jealousy and inadequacy are what lead many people to try to keep up with the Jones’ and when that happens financial ruin is usually the next step. Instead of letting your jealousy help you make bad decisions, you should try to use it for good.

When you see your peers take the next step financially, like buying a newer car or a house, you should use try to set your jealousy aside and ask yourself if you are truly envious of them and their new purchase or if you are simply feeling inadequate or behind. If you truly want what they have, set up a plan so you can truly afford it instead of setting yourself back financially to get it right away.

Embarrassment

As someone who is still fairly new to living as frugal a life as possible, I can really relate to how embarrassment affects your finances. I’ve let my embarrassment affect my finances more than I’d like to admit. There have been times where I was embarrassed to be taking my lunch to work when all of my co-workers were going out to lunch. I have been embarrassed about the huge overgrowth of my hair when the line from my last dye-job is easily noticed. But I’ve discovered that my being honest with my closest friends and family about why I haven’t gotten my hair done in a while they are supportive of my decision to save money to pay off debt instead.

Sadness

It’s easy to see how sadness can have a negative impact on your finances. For example, after my divorce I was pretty sad and lonely. Instead of trying to cheer myself up by spending time with friends and family, I spent a lot of time shopping for new clothes at the mall and racking up credit card debt. My emotions definitely got the best of me (and my finances) when I was sad. When you are sad, don’t stick your head in the sand and ignore your finances. Instead you need to face them yourself or find a trusted friend or family member to help you make decisions while you are grieving.

Joy

Generally joy is a positive emotion, but even positive emotions can have a negative effect on your budget. When you are feeling happy or joyful, it’s easy to spend too much money to celebrate whatever positive things might be going on in your life. Wanting to celebrate joyous occasions in your life is normal and you should allow yourself some room in your budget to do so reasonably.

Over-confidence

Over-confidence is also something I used to suffer from. When I signed up for my first credit card I thought I knew everything I’d ever need to know about personal finance and credit. I was confident that I was “smart enough” to not over-spend and end up paying interest on my purchases. To beat the detrimental effect that over-confidence can have on your finances, make sure you give yourself a firm dose of reality every now and then.

What other ways can you think of that emotions affect your finances?

Photo courtesy of: Maksim Jeskevic