How To Be Less Emotional About Money
Dude, don’t get so worked up. I just wanted to see if you could babysit for the night.
I just came across this gem of a comment on an old post:
I think it’s hard for people to understand the emotional burden of money – and I’m including myself in this group. Money never really has an emotional impact on me. It’s just kind of…well, there or gone.
I think a lot of it has to do when you have your first “intimate” moment with money. Like…when you first realize that money is going to affect a lot of decisions you make, or have made. If you’re the kind of person who’s first experience or realization with money was an “oh snap” kind of moment, you’re probably going to have a different perspective than someone whose money v-card was taken by a “wow, I can be rich” moment.
But what do I know? I’m not a money therapist – these are just my two cents on it.
First, sorry JT that it took me so long to notice this comment, and thank you for leaving commenting gold which leads to a whole new post. Indeed, how emotional you are in regards to your money-related experiences (and doesn’t that seem to be a whole lot of our experiences?) will have a HUGE impact on your finances and your life. Credit cards do a great job of catering to your emotions, they offer promotions that are not worth it if you are carrying a balance and paying interest, yet this is exactly what many of us do when we are mindlessly plowing ourselves into debt–we find ways to justify spending and companies that make money from lending you money are more than happy to encourage your emotionally-wrought, money-spending ways. If you first came to understand money as something to be spent, and watched as spending sprees and vacations came to spell emotional distress after the fact, then money probably carries some emotional factors for you. I fall into this category-I grew up spending time at the mall and looking at model homes as a pastime, and shopping and vacations were big rewards which one could never seem to get enough of. We sometimes talked about investing, but never as much as we talked or thought about spending, and that was a big part of my life until a couple years ago. I know I’m on the right path because I have been A LOT less emotional about money lately. I’m resigned to the fact that I need to pay off most or all of my credit card debt before I can make any big business or real estate moves, but it doesn’t keep me up at night. Paying off the debt methodically and as fast as possible is just part of my regular routine now. Not getting all worked up about stuff I can’t afford is really easy, and in fact, the less stuff I buy, the less I feel like I am missing out on anything.
So if you want to be less emotional when it comes to your money, here are a few key ideas:
1) Know where you stand. Don’t be in the dark about your finances. Know what your net worth is, what your debts are and whether you are doing a good job of spending less than you earn. If you can’t answer any of those questions, you might be in denial about your situation or just being lazy about your finances.
2) Set short-term goals for your money. For a long time, I couldn’t make any progress on my finances because all I had were these big goals which I was doing nothing about. I need to pay off $40,000 in debt! I need to own many properties! I need to be an investing genius! I finally decided to just take it one account at a time with debt and one step at a time when it comes to real estate and you know what? I’ve paid over $20,000 off in a year and a half and I am saving for a down payment with every bit of income I make. And with investing, I’m focused on reading as much as I can and building my knowledge of companies, financial analysis and investing strategies. I want to have my own plan and not follow anyone else blindly this time around.
3) Make progress on long-term goals for your money. Instead of getting emotional around the rise and fall of stock prices, create an investment strategy that focuses on what you understand and can invest in. Personally, I want to invest in local business with a small portion of money for investing in the markets. I’m talking to business owners daily and since I work for a small business, I get to see a lot of the behind the scenes work that I might not see otherwise. I don’t own my own business yet, but I am working on these goals every day and seeing the next steps I need to take.
4) Have a plan for entry and exit in all money matters. Do you pay a mortgage off early that’s $100,000 underwater? Do you hold on to a stock of a fading technology that you originally planned to exit when it was at 80% of its original value? Do you keep bailing out a friend who hasn’t paid you back since 2007? If you can make a plan and feel confident in its reasoning, you will be less likely to get emotional when it comes time to make a decision.
5) Avoid the “My emotions and money are all intricately wound together” situations as much as possible. You can’t avoid them all. You can’t really miss your best friend’s wedding and you can’t get them an ultra-cheap gift (although maybe you could make something on the cheap?). If your mom asks you for money, you’ll probably want to lend it to her. But you also don’t have to go to every dinner and outing your friends go on, especially not the ones where everyone will be feeling the need to spend a lot to impress one another. You might think you need to live in the “right” neighborhood (West Coast: Santa Monica, Newport Beach, La Jolla, East Coast: Hoboken, TriBeCa, Chelsea, Georgetown) because you are young and single and all your friends live there, but you could find that forging your own path and living somewhere that makes sense for your budget is a lot more rewarding than trying to keep up with the amorphous mass that is your circle of friends.
6) Find Opportunities to Invest Your Money Now, Even at Small Amounts. If you can make investing an important and rewarding activity, you will probably feel less inclined to go out and spend your money for an emotional reward. You can invest in stocks, peer-to-peer lending networks, or even buy some vending machines for a busy area.
7) Read, Read, Read. I feel much more confident now that I understand how money works on an individual level. I am great at an institutional or business level about money – but never understood how to successfully manage my own money, expenses and investments. Now I read blogs, books, and investment newsletters and I can still be reading more.
8) Be honest about your money triggers. It took me a while to admit that I spent money to feel like I was part of some illusory elite group. Being in Nordstrom and shopping for $36 lip gloss meant I was important. Lingering over a fine wine on a Saturday night in a little Italian place made my relationship more romantic. Knowing the best jewelry designers meant I knew good craftsmanship and belonged to a special club for those of us in the know. I can laugh at myself now, but before, all these little images I had of myself were painfully important. I had to be honest with myself and figure out why I wanted to spend so much, even when I couldn’t afford it. I will get to the point where I can do all of those things and more, but I have a feeling that I will no longer care about that stuff (because I already don’t).
Our emotions are wasted on money. Instead, good long-term planning and realistic assessments of our abilities and potential will help carve a path towards using money as a tool and not turning it into a life-consuming beast (is that an emotional description? I guess I’m not fully reformed yet!)
Continued Reading:
The Big Money Test BBC (pretty cool test with money “types”)
How your emotions can cost you money CNNMoney
Money Comes with Emotion Behavior Gap
It’s funny because often times I will look back at ‘bad’ financial decisions I’ve made along the way, like a poor investment or dumb purchase, and I’ll almost laugh attributing it to just being young and stupid. Then, later when something similar comes up, I’ll get reminded that the emotional element was likely what caused the bad decision in the first place. Hindsight allows you to remove emotion from the equation, but when it’s staring you in the face, it definitely becomes a factor. Controlling it is key.
Good point, it is easy to be more rational in hindsight. Emotions still come up for me with each new decision, but it’s been a lot easier to control it as I gain more experience with not being so impulsive about money.
I really needed to hear this! Thanks! I’ve been getting a bit off track this month.
I think we can all use good reminders every now and then…maybe I should make a 12 month calendar with money tips!
I’ve always found the “invest it” advice to work best for me. If I get the money saved, it won’t be there for whatever “project” or “fun thing” I’m imagining today.
But I love projects and fun things, Joe! Agreed, I can easily still spend everything I have, but I have been designating funds and not feeling the impulse to switch things around once I’ve committed to saving a certain amount.
I realized that I need to set short term goals for myself in order to be successful. Looking at all the things I want to do (own rental properties, build my own house, etc.) were overwhelming when I looked at the picture as a whole. I broke those goals down in to shorter term ones so that the overwhelming feeling is gone, but I am still making progress on getting to where I want to be.
It’s definitely helpful, and I know one trick is the “create three doable tasks for each goal”. For example with my highest-interest debt, it’s putting at least $200 extra towards it each week, as soon as I have it. The fewer days I am paying interest on the larger balance, the better.
Money matters can be overwhelming when looking at the big picture. Focusing on smaller, short-term goals is a great idea. Chipping away at the problem can be a much more manageable solution and helps to establish a positive mindset. Small lifestyle changes can have profound effects. It’s like trying to lose weight. Losing 20 lbs can seem daunting but setting a short term goal like losing 2 lbs in 2 weeks doesn’t sound nearly as difficult. Hitting incremental milestones reinforces a sense of accomplishment and can make all the difference in maintaining a healthy relationship with your money. Great post on a tremendously important topic.
2 pounds in 2 weeks definitely sounds doable. In fact, I think I want to try that!
I definitely find that the more I know, and more I read about money, the more confident and the less I worry about money. I guess when I feel like I know what to do with money, then I feel in control and then just don’t feel as emotional with it. Great post!
It’s true, even though, say, I don’t have as much money as I want right now, I know what my plan is and what little and big things I need to do to get to where I want to be.
Great post, ADP. (I really liked the call options post too.)
I think it’s awesome that you have a plan, or you’re at least putting off all the other plans while you focus on the big one – paying down debt. I get those wild, crazy, and far fetched ideas every so often and it takes everything in my being to say to myself, “hey, stick to the original game plan.” I get the sense that you’re the kind of person who likes to plan -really plan with all abandon – but once you work out all the details you’re done with the idea and ready to chase some new challenge. (Maybe I’m just projecting, because that’s what I like to do.
) Sometimes I have to give myself a big slap to focus on the small stuff, and eventually work towards the bigger stuff.
Your last line is the best line. It’s the self-assessment that is the hardest part, and probably the most emotional. I figure if there’s anything I can do to better myself, it’s to learn what I cannot do.
Thanks JT! OK, so I have a plan…:) but seriously, what you described is mostly true, but I have been a lot better about not abandoning the idea/plan lately. And I’ve even resolved to focus on just two big ideas for the rest of the year (either they will work out or they won’t, then I can move forward accordingly). I have not thought about what I can’t do, but I like the idea. When you know what you can’t do, you can give a more sincere effort to doing better the things you can do?
Good post. It’s very important to manage one’s emotions when it comes to money. I really believe, based on things I have seen with different people, that being overemotional about money – or, in some cases, letting emotions guide money decisions – will usually result in less than optimal consequences.
Definitely. It’s what I saw in my own decisions that finally got me thinking, “there has to be a better way to do this”. I also wanted to learn to get over the “But if I don’t do/buy this now, I never will and my life will be over!!” I’m getting there!
Very helpful post. Indeed, we sometimes don’t realize that money matters are already ruling our emotions. Before, I viewed therapies as appropriate only for multi-millionaires who go bankrupt but I guess it equally applies to everyone.
I think money therapy is a underutilized niche, therapists and counselors are often just as uncomfortable about money as their patients, and it’s a huge stressor in most people’s lives. Could be a great business idea!
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I love this. My main problem is that I’m too emotional about money. Or, more correctly, about spending. I get very, very stressed out – to the point that it damages my ability to cope with day to day life. That leads to more spending on things like convenience food. Which drains our accounts, which stresses me out. And so on and so forth.
My husband’s been a good influence on me, and vice versa. (He’s always been a little too lax about money.) But now I’m in a weird place where I’m too lax about spending, while still stressing out over our spending. Blech.
I love the #8 in this post. I think Tim and I need to sit down and figure out the emotional connections in our spending.
Are we related? I spent a lot of time at “parade of home” events growing up too – totally gave me an inflated vision of what my future home would be like. I am definitely too emotional about my money; but what PF blogger isn’t (or hasn’t been)?
I think the point about short term goals is a good one. We have a lot of big goals about owning property and paying off student loans, but it’s basically just dreams until you can break it down into smaller steps. Sometimes, I’m not even sure exactly how we’ll get to the goal, only that the next step is to do X.
That’s kind of where we are with property owning. We want to have 2-3 rentals, so first we just started with one a few years ago and now we just bought another. I don’t have a plan for how we’re going to get to the third one or even when it will happen, but we’re saving up money because regardless of how we end up doing it, we’ll need money to put down!
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