Emotions are a powerful force that can shape our decisions and experiences in life. But when it comes to managing wealth, allowing emotions to take control can lead to detrimental outcomes. It’s essential to recognize the influence emotions can have on our financial choices and strive to maintain a rational mindset.
In the world of finance, fear and greed often tempt us to make impulsive decisions that may jeopardize our long-term financial well-being. By understanding the impact of emotions on your wealth, you can develop strategies to overcome these impulses and make sound, objective decisions.
In this article, we’ll explain why it’s so important to keep emotions in check when it comes to your financial journey, and share practical tips to help you maintain a balanced perspective.
The Money Script
Do you sometimes feel like the discipline to make rational and well-thought-out financial decisions must be too good to be true? Because no matter how hard you try, you just can’t seem to stick to it? Well, I am sure there are others that feel the same way. These feelings are not uncommon and are most likely due to the emotional and psychological baggage we all carry around relating to our money, otherwise known as our money scripts. And, as with most of the baggage we’ve lugged into our adult lives, these scripts usually start forming at a very young age.
Even though we may not be aware of it, we spend our childhood picking up on how our parents and other significant role models relate to and handle money, and over time, our brains are subconsciously trained to respond in similar ways. If your parents were confident in their ability to make wise investments, you will likely face investing with confidence as well. Contrarily, if you experienced your parents scrounging to get by and often quarreling over expenses, you may experience some pretty strong feelings of guilt when making certain purchases.
The seeds of money scripts are planted in childhood, watered by observation, and eventually grow to influence your emotional beliefs about finances as an adult. For this reason, it is vital to be intentional and diligent in talking to your kids about money and modeling healthy financial behaviors. It is just as important to take the time to examine yourself and understand your money scripts and how they influence your financial behavior.
The Negative Side of Money Scripts
To be fair, not all money scripts are bad. Some behaviors we learn plant seeds for beneficial emotions about finances. However, other behaviors, such as money avoidance, focus on financial status, or the idolization and even worship of money, can be flat-out detrimental. Unhealthy emotions and belief patterns can lead to all kinds of financial problems, such as financial infidelity, compulsive buying, pathological gambling, and financial dependence. Certain money scripts have been tied to lower levels of net worth, lower income, and higher amounts of revolving credit.
Those may sound extreme, but have you ever let panic during a market downturn take your focus off of your long-term investing plan? Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? Have you ever wreaked havoc on your budget for the momentary high of acquiring something you really wanted? All of these behaviors stem from your personal money script.
Money Scripts Can Be Changed
We often think that if we had more money, we wouldn’t have any problems. But we have money problems because of how we approach money, not necessarily because we don’t have enough. This is good news! We might not be able to drastically increase our income, but we can learn to control our attitudes and perceptions. Our money scripts may be ingrained from childhood, but they are not permanent. With a focused and concerted effort, they can be changed.
The first step you must take in overcoming your money scripts is to identify them. To do this, you must become aware of your emotional responses to common financial situations. Begin to stop and notice your emotional responses to these common experiences:
- Earning money
- Buying things
- Saving for the future
- Budgeting and tracking expenses
- Making financial decisions
- Volatile markets
- Healthy markets
- Meeting with a financial professional
- Thinking about your financial future
How do these things make you feel? Anything that elicits strong emotions warrants further reflection. Keep in mind that negative emotions are not the only ones that can harm your financial life. Some positive emotions, like optimism and self-confidence, can bring about negative results if unwarranted and left unchecked.
How to Manage Emotional Money Decisions
The key to changing your money scripts and developing healthier money habits is learning to control your emotions. You can also build some new, healthy habits that protect you financially and incorporate them into your life. Habits and disciplines such as taking advantage of automatic savings, investing through your bank or employer’s retirement plan, scheduling regular family budget meetings, and enlisting the help of someone reliable to keep you accountable are great places to start. Eventually, you will learn how you respond to emotional triggers and you can then take steps, like mandating a “cooling off” period for yourself, before making any decisions.
Finally, you need to be willing to forgive yourself when you make mistakes. Leave the past in the past and move forward with the new knowledge you have gained. Choosing to forgive yourself for past mistakes frees you up to be more effective with your new tools. As you begin to collect victories, both big and small, you will likely find it even easier to extend forgiveness.
A Partner You Can Trust
Choosing a financial advisor requires careful thought, and your comfort with your advisor should be a top priority. Financial planning is a continuous journey, which is why we are committed to being by your side and putting you first throughout the entire process. If you’re ready to take the next step, I invite you to call our office at 845-278-8638 or send us a message to set up a complimentary consultation. Let’s determine if we’re the right fit to guide you on your financial journey.
Michael Durante is a founder, Certified Financial Planner™ (CFP®), and Certified Divorce Financial Analyst™ (CDFA®) at Infiniti Wealth Management, an independent, fee-only financial advisory firm. With over 25 years of experience, Mike specializes in serving women who are going through a life transition, whether that’s a divorce or the death of a spouse, as well as pre-retiree and retiree couples. He is passionate about helping his clients develop a personalized financial plan based on their values and goals so they enter retirement with confidence and peace of mind. Mike has both a bachelor’s degree in business administration and an MBA from Pace University. When he’s not working, Mike loves spending time outdoors hiking, biking, walking, golfing, campfires, the beach and doing yard work, as well as spending time with family and friends. Mike also enjoys to read, travel, and check out local restaurants and events. To learn more about Mike, connect with him on LinkedIn.
June 2, 2023 - Michael Durante, CFP®, CDFA®