Emotions and Money: How to Keep Them Separated
No matter how much we try to deny it, the actual, absolute fact of the matter is that humans are emotional beings. As much as we all want to believe we think with our heads and not with our emotions in financial decisions, it isn’t true.
In fact, if human beings only ever made rational, logical decisions in spending, then our economy would be in the toilet. As much as we want to believe we buy the things we do for rational and logical reasons, the truth is, we often buy things because we like the image it sends or how it makes us feel about ourselves.
Understand the Linkage
The only way to use money wisely is to understand and acknowledge the deep link between spending and emotion. There are few of us that haven’t bought something to feel better at some point in life.
This is fine if it happens occasionally. However, people can run into real problems if they use shopping as a way of feeling better about themselves, their life or their circumstances and make it a chronic habit.
In fact, this has become such a problem in the Western world there is even a name for it: a money disorder.
There is a wide variety of reasons that shopping and spending make us feel better about ourselves, but few of them are healthy. More often than not, we spend because we feel it will boost us in the eyes of someone else. We want to look prettier so someone will like us more or spend to make the neighbors jealous. We shop to send “the right message” to fellow members at the FRG, PTA, etc.
Ultimately, spending to achieve momentary happiness will fall short. The sad fact of the matter is: no one cares.
Learn to Curb the Impulse
At some point, most people realize that shopping and spending don’t bring them the satisfaction they always expect it will. Realizing this is not always enough to help us overcome the urge.
Luckily, there are several practices and disciplines that will.
One of the first things that most financial planners recommend when trying to take control of your finances is to write down every dime you spend.
Right now, it’s not important that you stop spending. Although, keeping track will go a long way towards helping you do that.
Spending is an emotion-fueled experience while tracking spending is entirely rational. By writing down all expenses you can take some emotion out and inject rationality back into it.
Rewire Your Brain with New Habits
Human beings are surprisingly bad at knowing what makes them happy.
In fact, according to a recent Harvard study, if you want to know what makes you happy, your best bet is to ask a total stranger. We often shop because we think buying something will make us happy. We are wrong. The general outcome is that things we buy do not drive our happiness.
Unfortunately, thanks to habit, that doesn’t keep us from buying thing we don’t need.
You can get out of this trap by creating new habits in the same way you created old ones – by doing a new thing again and again until it becomes a habit. The more often you do something, the more ingrained it becomes until it turns into a habit.
If you are an impulse shopper. Or are in the habit of buying things on a whim, learn to walk away and set a timer on your phone for 10 minutes. If you still need or want the thing after 10 minutes or after you’ve given yourself time to think about it. Then go ahead and buy it.
Take Advantage of Your Emotions
There is a way to use the emotional element of money management to your advantage – when it comes to paying off debt.
Let’s have a look at two popular debt payoff methods. The first method is driven by our emotions while the second method is based on math and logic.
- Debt Snowball: Pay off the smallest debt first and then use the money left from that debt and apply to your next smallest debt.
As we focus on the easiest, smallest debt first, we get to see the results very soon. That makes us happy and motivated to accomplish more and to continue getting out of debt. Our feelings are a sole motivator in this case.
- Debt Avalanche: Pay off your highest interest debt first, then take the payment and apply it to your debt with the next highest interest rate.
This method can save you more money in the long run, but it relies less on our emotional behavior. Although it is logical to tackle the high interest first, it might be harder to endure. Especially if takes more time to see results.
When it comes to debt and motivation to fight it, we might be better if we put math aside and use our imperfections to our advantage.
For extra motivation with debt pay off plan, celebrate your achievement, but not by buying yourself something. Rather, give yourself some “me time” or a day off from your diet. Use some other type of reward that doesn’t involve thinning the wallet.
It is unlikely you will ever be able to separate your emotions entirely from spending. That doesn’t mean you can’t manage them.
Acknowledge the strong link between emotions and money. It will go a long way towards helping you make more logical and rational decisions in financial management.
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