Emotions and money: A dangerous combination
Suzanne Zemelman, MS, JD
Consumer & Family Economics Specialist
I often hear people say, “If only I made more money, I would be happier and life would be better; I would be able to get the things I want out of life.” This same statement, in one form or another, comes from people who make less than $25,000 a year as well as people who make more than $100,000 annually.
Since this same sentiment is conveyed by people at all income levels, there must be more than money getting in the way of people’s wants and dreams. For many of us, emotions can be a major roadblock to reaching our goals. Emotions often cause us to spend money on things we really don’t need or want long-term. Emotions can also prevent us from doing what we need and want long-term.
What does emotion look like? It looks like the red dress and new coat you bought because you had a bad day at work. It looks like the big flat screen TV bought to have friends over to watch a sporting event. It looks like the new car you bought because you really like the car your neighbor owns—and you deserve the better things in life too.
Emotion is linked to self-esteem. Self-esteem can have great impact on spending and financial decisions. If we feel something is missing from our lives, or that we don’t measure up to the expectations of ourselves or others, we might buy something to prove ourselves or to fill the void, at least temporarily. Or we might pass up opportunities that could put us ahead financially.
Our level of self-esteem and other emotions can change from day to day, but
do we want our credit card balances to
increase — reflecting our emotions? Remember, the fix you get from the purchase is only temporary—the real change in how you think or feel about yourself and others must be made in your own mind. You can’t fix how you feel inside just by changing things on the outside.
Other emotions that impact our financial decisions include depression, anger and retaliation; boredom or the need for recreation; fear; envy or unrealistic expectations; the need to use money to control other family members; and emotions related to attitudes and values we acquired during our youth and from our life experiences.
Emotional spending can prove to be expensive and destructive behavior, pushing goals and dreams farther and farther away. For example, often I have seen the spouse—who feels a lack of control or input in family finances, or feels neglected in the relationship—retaliate by buying expensive items such as a car or jewelry, throwing the family finances off course.
So how do you prevent emotions from setting you too far back financially from your hopes and dreams? Or how do you prevent emotions, such as fear, from delaying or obstructing your ability to get ahead? Your best bets are communication, awareness of your emotions, research and planning.
Set goals so you have a reason not to let your emotions control your money.
Write goals down and identify how much time and money it will take to get there. Having a plan can help you overcome the emotion of fear that may cause you to buy products you don’t need, or prevent you from taking financial or personal risks that could help you achieve your goals.
Discuss with all family members so everyone sees the benefits and has a personal stake in the outcomes.
If you keep your written goals handy and remind yourself often of the priorities you set, this may help keep you on track if your emotions start to take over. Do your research before you buy so you know the price you can and are willing to pay; stick to your guidelines so emotions don’t cause you to overpay. For example, don’t overpay because you “fell in love” with some thing. The money you overpay on items means your other financial goals will take longer to achieve. Emotions and money don’t mix.
Have a plan for spending.
Involve family members who have an impact on household spending. Be sure you include saving for your goals in the plan. Make allowances for impulse or emotional purchases – set some limits.
Make a plan for achieving your goals.
Having a plan can help you overcome the emotion of fear that may cause you to buy products you don’t need, or prevent you from taking financial or personal risks that could help you achieve your goals.