Don’t Let Money and Emotions Keep You from Achieving Financial Independence

Money makes us feel. Whether we’re down to our last dollar or just received a bonus at work, we experience real emotions that may cover the entire spectrum – fear, anger, euphoria, joy, and many others.1 Recognizing that money and emotions are inseparably bound together is the first step to remaining in control and keeping your finances on track.

Mature man doing finances in home officeThe Pixar hit, “Inside Out,” told the story of a young girl’s struggle to cope with a major life change by depicting the myriad emotions warring in her head as individual characters. It’s not unlike the emotional “tug-of-war” going on in our own heads when it comes to money decisions. “Fear” wrestles with “desire” over whether or not buying the latest smart phone is a wise move, especially when we already have a perfectly good, albeit older, one at home.

Failure to understand the impact money and emotions has on each other can lead to poor financial decisions, and many times, financial ruin. While we can’t separate the two, we can learn to control our emotions and impulses, and begin to change our deep-seated attitudes toward money.

For many of us, the origins of that attitude can be traced back to childhood. Our parents are our role models when it comes to money management.

Deevra Norling wrote in her blog, “How our parents handled money and emotions provides the foundation for how we may handle money. This is reason generational poverty and generational wealth exists. Poor people [may] impart bad money habits and beliefs to their children. On the other hand, wealthy people tend to impart their philosophies and strategies on wealth creation to [their] children.”2

Norling may have taken a broad brush to that statement, but there is some truth in it. Finances and money are rarely talked about in the home, and only six states require the testing of student knowledge in personal finance.3 What many of us know about money, we learned from observing how our parents handled it, and this was often through the emotions they displayed.

If the parents ran a tight financial ship, saving money and planning for the future, then their children are probably frugal, have 529 plans for their kids’ education, and a solid retirement strategy in place. On the other hand, those parents who lived well beyond their means most likely have offspring who buy the latest and greatest whether they need it or not, rack up huge credit card bills, and are basically living pay check to pay check. Of course, there are always exceptions to the rule.

But, now that we’re adults, we can part ways with our parents’ fiscal approach and create a new, healthier attitude toward money.

Problems At WorkFirst, we have to change the “money script” in our heads. Bradley and Ted Klontz, financial psychologists, coined the term to describe a person’s “core beliefs about money.” As they explained it, “money scripts are typically unconscious, developed in childhood and passed down from generation to generation within families and cultures, contextually bound, and often only partial truths.”2

To begin to change your money script, you need to understand what your motivations toward money are. What makes you want to have money? What motivates you to spend or save that money?

Do you make money to ensure you have the most expensive car on your block? Or, are you comfortable with a lower-priced, family car that will get you where you want to go safely? Your motivations about money, and the subsequent emotions that follow, determine the path you’ll take.

Take a brutally honest look at your motivations and determine if they will propel you toward financial security. If not, it’s time for a change.

Identify what your financial goals are for you and your family. Do you want to ensure your children can pay for college without resorting to student loans? Do you want to live comfortably now and in retirement? Or, are you a member of the sandwich generation, who wants to be able to support and care for your children, as well as your aging parents?

Once you know what you want, change your motivators to ones that will help you achieve your goals and create a financially sound lifestyle for you and your family.

family drawing money house clothes and video game symbolNext, up you need to break your bad financial habits and replace them with healthier ones. For example, are you relying on credit cards to fund your life, paying only the required minimum each month? This is a bad habit you share with many other people. Consumer debt, used to finance new cars, college tuition and other consumer goods, has hit an all-time high of $3.2 trillion.4 You need to take your cards out of your wallet. Commit to only paying cash and create a plan for paying down your debt.
There is definitely a thrill to buying what we want when we want it, but that joy usually is accompanied by guilt. A better approach would be to plan for that expense by saving the money to pay for it.

Once you understand the complex relationship between money and emotions, you can begin to make the course corrections that will, ultimately, lead you to financial security and the peace of mind that comes with it.

1 Robert Plutchik’s Wheel of Emotions theory. Financial Psychology Module. Financial Literacy Curriculum. LiSA Literacy Project, sponsored by First Financial Security, Inc.

2 Deevra Norling. “Money is not about finances, it’s about emotions.” Jun. 16, 2015. The Huffington Post. HuffingtonPost.com > The Blog. http://www.huffingtonpost.com/deevra-norling/money-is-not-about-financ_b_7579746.html

3 “Survey of the States – the state of K-12 economic and financial education in the United States.” The Council for Economic Education (CEE). 2Feb. 12, 2014. http://www.councilforeconed.org/policy-and-advocacy/survey-of-the-states/

4 Allison Schrager. “Consumer debt hits all-time high.” Bloomberg.com > Bloomberg Business > Risk. Sept. 30, 2014. Schrager cites data taken from the Federal Reserve’s Flow of Funds.