Let’s talk about something that doesn’t get enough attention: our emotions and how they affect our finances. Many think finance is all about numbers but would you be surprised to learn that your current financial situation is driven mostly by your behavior and emotions? Dave Ramsey has said, “Personal finance is only 20% head knowledge, the other 80% is behavior.” To get to the root of why you make certain decisions with money, you must learn the psychology of money and why you make the choices you do. If you’ve been struggling to stay financially stable, your emotions might be playing a bigger role than you realize. Understanding these emotional triggers can be eye-opening, and working with a financial coach like me might be just what you need to get back on track.
A common emotional trait I have found in working with clients is the emotion of impulse spending. We’ve all experienced that rush of excitement when we see something we want and just can’t resist buying it. Maybe you aren’t even aware of your tendency towards impulse spending. The impulse to splurge can lead to serious debt and empty savings accounts. According to a Federal Reserve study, people who act on impulse often find themselves in financial trouble due to high credit card debt and poor saving habits (Federal Reserve, 2015). Many times, my clients are not even aware of their own impulse spending behavior. As a coach, I always ask my clients, “What is your first memory of money?” The look on their faces after I ask that question is a “light bulb” moment. We are all a product of our past which includes how we have grown up with and interacted with money. When we understand how our past connects with how we operate with money today, we can finally address patterns like impulse spending and choose differently in the future.
Another emotion the can keep you broke is the emotion of financial anxiety. Feeling overwhelmed about money can cloud your judgment and lead to poor decisions. Research published in the The Economic Importance of Financial Literacy: Theory and Evidence shows that financial stress often causes people to avoid dealing with their finances or causes them to make hasty choices (Lusardi & Mitchell, 2014). Often, a client will seek out my services because they are experiencing financial anxiety and stress because the outflow of money is more than what they are bringing in per month and they don't know what to do next. Helping a couple or individual overcome this debilitating anxiety is one of the most important things I can offer as a financial coach. Because financial anxiety is an emotion, it requires delicate and precise surgical precision to help root out the issues behind the anxiety and implement practical and manageable steps that will help them take control and eliminate financial anxiety.
Shame about past financial mistakes can keep individuals in an endless cycle of financial mistakes. If you’re avoiding your finances because you’re embarrassed about past errors, you’re not alone. According to Financial shame spirals: How shame intensifies financial hardship, the authors found that shame creates disengagement and can ultimately lead to poverty (Joe J. Gladstone, Jon M. Jachimowicz, Adam Eric Greenberg, Adam D. Galinsky, 2021). Shame is a powerful emotion, and it must be confronted directly and quickly. In my coaching, I often use the phrase, “let’s drag everything out into the light.” Once we bring it out of the darkness and into the light, we can confront and do battle with the emotional shame associated with past financial decisions. As a coach, I help clients move past these negative feelings by focusing on solutions and creating a positive action plan and a complete change in financial direction.
Finally, let’s talk about FoMO, or the Fear of Missing Out. It’s easy to overspend when you’re trying to keep up with friends or the latest trends. Bonaparte and Fabozzi noted in their research, “The fear of missing out on investment opportunities, fueled by social media and the desire to not be left out, can lead to impulsive and emotionally driven investment decisions, potentially resulting in losses.” (Bonaparte & Fabozzi, 2021). Whether you are trying to keep up with what your close friends or neighbors are buying, or you feel like you’ll miss out on the latest financial trend that’s blowing up on social media, understanding why FoMO is a driving factor in your financial decision making is key to avoiding costly mistakes. Focusing on gratitude and contentment are ways to overcome being a victim to FoMO. I’ve helped families learn to set financial goals that align with their values and helped them make decisions that support their long-term financial health rather than succumbing to social pressures.
Our emotions can heavily influence how we handle our finances, often leading to challenges that seem difficult to overcome. Recognizing how feelings like impulse, anxiety, shame, and FOMO impact your financial decisions is a crucial step. With the help of a financial coach from Legacy Financial Coaching, you can address these emotional factors, make more informed decisions, and work towards financial stability. It’s all about turning emotional challenges into opportunities for growth and improvement.
Taking the Next Step
So, what’s next? The first step is simple: take a good, honest look at where you are right now. Then, start thinking about where you want to be. If you need help, advice, or just someone to cheer you on, Legacy Financial Coaching is here for you. Reach out, and let’s start working toward your financial freedom together.
Here’s the truth: Emotions are a blessing but they make a terrible god. Your emotions don't have to control your decisions! Contact me today to learn how you can overcome the emotions that keep you financially broke.
Be Free!
Greg
References:
- Federal Reserve. (2015). Impulsivity and Financial Decision-Making.
- Lusardi, A., & Mitchell, O. S. (2014). The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Behavior & Organization.
- Joe J. Gladstone, Jon M. Jachimowicz, Adam Eric Greenberg, Adam D. Galinsky (2021). Financial shame spirals: How shame intensifies financial hardship. Organizational Behavior and Human Decision Processes [https://www.sciencedirect.com/science/article/pii/S0749597821000662]
- Bonaparte, Y., & Fabozzi, F. (2021). Catching the FoMO Fever: A Look at Fear in Finance. [https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=3924594]
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