Managing Emotions and Money
By: Aimee Malgapo
Money is an emotional topic for most people because it has a strong impact on our lives and influences our stress levels, mental health and personal relationships. If we are not educated about money early on in our lives, we can make poor financial decisions that will negatively affect our lives. In addition to learning healthy money habits, it behooves us to understand ourselves and why we make the decisions we do.
In his book, Your Body Keeps the Score, Dr. Bessel van der Kolk states “Emotions give shape to whatever we do.” Our behaviors and habits are driven by how we feel. If an experience inspires happiness or joy, we are more likely to repeat the action over and over again. If we experience sadness, fear, or anger, we are less likely to commit to that action and may withdraw from it completely. It is important to cultivate emotional intelligence to be aware of what we are feeling, where these feelings come from, and not immediately to react to them. This is related to personal finance because our money-managing actions are related to how we feel about money.
Emotional intelligence is the ability to manage your emotions and understand the emotions of people around you. Five characteristics of emotional intelligence include self-awareness, self-regulation, motivation, empathy, and social skills. It is important to work on these skills in order to build emotional intelligence to better understand what drives our actions.
Behavioral economics is the branch of economics that integrates psychology to understand and predict how human beings behave. Our behavior will always be the result of the union of thought and emotion. In addition to this, it is paramount to consider the influence of the environment and the practices we have been taught related to money, so that we can broaden our financial awareness.
How can you balance emotion and logic? Some actions you can take to balance emotion and logic include reframing decisions, creating a waiting period, becoming in tune with your thoughts, and holding yourself accountable.
Examining how emotions influence your thoughts and actions can better equip you to make emotionally well-grounded financial decisions. Financial Therapist and wealth counselor Marilyn Wechter calls this "making conscious the unconscious" — bringing your emotions and beliefs to the front of your mind so you can better understand their influence on you. "Emotions are neither good nor bad," she explained. "The goal isn't to be emotionless, but to understand the emotions that are driving your decisions. Be clear about where your feelings are coming from, so you can look at things as realistically as possible."
Change starts with awareness. When you understand the roots of your behaviors, you can begin to relearn them or replace them entirely. Money is incredibly personal, and people dedicate so much of their lives to earning it.
In the world of personal finance, emotional intelligence is a silent but powerful force. Managing emotions is not just a soft skill—it's a key determinant of financial success. By honing emotional intelligence, individuals can gain better control over spending, make sound financial decisions under stress, and navigate the complex landscape of personal finance with resilience and foresight. The marriage of emotional intelligence and financial management is a recipe for not just monetary success but a more balanced and fulfilling financial life.
Resources:
https://www.mapfre.com/en/insights/economy/financial-psychology-emotions-financial-decisions/
https://www.nerdwallet.com/article/finance/why-managing-your-money-starts-with-your-emotions
https://www.cnb.com/personal-banking/insights/emotions-and-financial-decisions.html
