How Emotions Affect Our Financial Decisions & What To Do About It, From An Expert
When I was 23 years old and swimming in credit card debt, all I could think about was getting out from under those large monthly minimum payments. I used way too many journal entries lamenting about my money stress instead of taking action. So when I created a budget that not only worked for me but also got me out of debt, I thought my work was done. Right? Not really.
I fell into the trap that happens for many: spending more when you make more. It's a slow growth that most of us don't realize until, well, it's a big issue. For me, it was after five years of being debt free when all of a sudden my husband and I found ourselves in a financial pickle.
I needed to do something drastic to help our cash flow, so I gave up shopping for a year (yes, I shopped that much and yes, it oozes privilege). And that was the year I connected some major dots—namely, having a budget isn't enough.
Why you need to go beyond budgeting.
Don't get me wrong; I believe you need a budget, but having a budget without looking at the emotional side of money is like putting a cast on your left leg when it's your right one that is broken—it won't really fix the issue that is hurting. And that can lead to the money yo-yo; paying off debt and then racking it up again or sticking to a budget for a period of time through sheer grit and determination until it's not enough to keep you going and you just give up.
If you think about it, many of us grow up learning how to celebrate, soothe, and entertain ourselves by spending money. This is true even if you or your family didn't have a ton of it—culturally, we are simply encouraged to spend in order to pacify ourselves.
I didn't realize just how many habits I had created around these lessons. So without shopping, suddenly I found myself with a lot of time on my hands. And that time allowed me the space to actually check in with my emotions and my true needs in the moments I felt the urge to shop. It was such a powerful year for me: I created my company to share the knowledge I gained because when you uncover the emotional side of money, it's a game-changer.
I've since done three separate years of no shopping. It's become my method for getting grounded back into my emotions and spending habits, and although each time I learn something new about myself and my money emotions and relationship, the core lessons are always the same.
Let's be real: Your emotions are driving your spending habits.
When we don't know what our habits and emotions are with our money, it makes it that much harder to create new habits that serve us because we aren't in tune with our current spending patterns and behaviors. The emotional feeling is completely different when you are purchasing items from necessity as opposed to wants and desires.
I'm not saying you can't purchase items for pleasure; you can! That's actually important. The difference is knowing when you are making a purchase because of an emotion you are feeling when your co-worker was rude to you or buying something because you've thought about it and feel grounded in the purchase. When you don't recognize the influence emotions have on your spending, it's actually harder to enjoy things when you do purchase them.
This often looks like buying something you have wanted but feeling a lot of guilt and shame when you do. That's what we want to avoid. If we are purchasing something, we should enjoy it. When you begin to simply be mindful of how you feel when you are purchasing things, you will start to see your own patterns and will naturally start shifting your actual spending so that it will inherently be more in alignment with you.
We all have money stories.
Although many of us don't actually learn how to manage our money growing up, we do learn money emotions and behaviors from the time we are born until about the age of 7, when our subconscious mind is developing. Most of these stories culminate in believing that money is stressful, there is never enough, it's tough to manage or is also a way for me to feel better and is the key to happiness.
If you think back on it, it's probably hard to recognize when you actually started to believe those things about money. This is the power of the subconscious mind. It's like the operating system on a computer. It works until it doesn't work and needs an upgrade. Your thoughts and beliefs affect your emotions, and those emotions are informing your actions, which lead to your results. And those results, my friend, affirm your thoughts and beliefs. So it is incredibly powerful to look at the stories, the phrases, and the emotions you have around your money and decide what is serving you and what needs to be rewritten because when you change your money stories, you will change your results.
Money is a thing; it can't take on an emotion unless we give it one.
When your emotions are swirling and driving your spending, it's really hard to see money for what it is: a tool that is meant to support you to live a great life. The emotions get in the way of us being able to look at the numbers for what they are: numbers. When you aren't shopping for a year, you start to realize the value of your money and that it is different for every person. Yes, money is a thing, and it is a way for us to express value. Spending $50 on vitamins might sound insane to you but not to me. And that is because each human has their own values for their life.
Realizing this also brought to light how much judgment I was putting on others for the way they spent their money. Once you recognize that we get to create our own value scale for our money, you will find that you no longer place judgment on others and how they choose to spend their dollars.
Not sure what your values are? Just take a peek at your spending. How you spend is what you deem valuable. If that seems off when you look at it, it's a perfect opportunity to sit down and find three to five life values. Spending in alignment with these values will feel freeing.
If you've struggled with managing your money or sticking to that budget and can't seem to find the missing puzzle piece, try approaching it from your emotions. They are incredible data points and will provide insight into who you are and what you need to shift to find your perfect money flow.
Brianna Firestone is a Financial Education Instructor certified by the National Financial Educators Council. Her expert advice has been featured in Money.com, Real Simple, and Business Insider. Firestone received her bachelor's in theatre from Stephens College and lives in Denver, Colorado.