Sometimes, money and emotions go hand-in-hand. Therefore, the better you are at managing your emotions around money, the further you will go with your personal finance planning and management. 

You already know about the behavioral finance branch. No? Depending on the context, there are various explanations, like an individual or the whole financial market. But when it comes to individuals or you as a person, it explains the psychological influences behind your behaviors around money and how it affects your financial situations. 

I have touched a little bit on some of the behavioral issues that affect our decisions around finances, like financial traumas and money personalities. 

But, have you really taken the time to look at your money decisions and consider what emotions you had at the time? Were you angry, afraid, or happy? Sometimes I think about some of my money decisions. Some point to anger and frustration. Yes, I might have made the same decision. But had I taken a minute to breathe and think, I probably would have taken a different avenue. 

Unfortunately, emotions are unavoidable. It’s even worse when the emotions driving you are sadness and anger. According to research, negative emotions are more intense and likely to lead to unwanted decisions than when you are experiencing positive emotions. Now, imagine what happens to your finances when you mix emotions and some of these important decisions. More often than not, it never ends well.  

Knowing how to weigh emotions before making financial decisions will get you closer to planning and controlling your financial decisions. 

Related post: Financial Freedom: What Does It Mean For You?

Money and Emotions: How To Avoid Letting Emotions Take Control of Your Financial Decisions

For starters, you need to know that you cannot avoid emotions. It could be happiness because an investment panned out or feeling sad that things didn’t go the way you wanted. Emotions are part of what makes us human. What you can do, though, is learn not to let your emotions drive your financial decisions. 

1. What Are These Emotions That Affect Your Financial Decision Making? 

There are two sides to this coin, positive and negative emotions. But let’s talk about the negative ones as they have the most impact:

• Sadness – do you get impatient when you are sad? It probably makes you want to make a decision there and then, even when it involves money. Unfortunately, such bouts of sadness make you forget about your future financial goals. Instead, you will be chasing after immediate gratification, like impulse buying, to make you happy. Instead, learn to take a step back, take a deep breath, and even talk to someone before making any financial decisions. I know it has saved me these last few years. Doing this will give you time to evaluate your decision and even see it from a different perspective. 
• Fear – are you afraid of making certain financial decisions? It could be stemming from past financial experiences, or maybe you are just fearful of making a wrong decision. Others are not just aware of what their decisions could lead to, especially if they have limited financial planning knowledge. It keeps you away from making financial decisions that will lead you to your financial freedom. First, you need to learn how to overcome these fears, especially if you are acting from past experiences. Second, if you lack sufficient knowledge about personal finance, start getting it. Honestly, there are endless blog posts, books, podcasts, and videos on YouTube that will help you in this. It just requires your effort. Third, consider getting a financial advisor.  
• Overconfidence – yes, this is a negative emotion. Have you heard of those people who believe that their investment is a sure bet, even without concrete evidence of how it is? Do not be too over-confident in your abilities to manage money or even make investments. It is good to be optimistic, but don’t let it get over your head and cloud judgment. 
• Envy – this little monster is what leads to keeping up with the Joneses. You know, your friend or rival bought the latest car or phone model and you are envious and want to keep up. All this while, you are getting deeper into debt or using up your savings and capital so that you can measure up. Separate your needs and wants, look at your finances and financial position, and stick to what you can afford. If you need something, start saving for it.  

2. What Are Your Triggers 

What sets you off? Do you talk to certain people or touch on certain subjects, and your blood boils? You need to dig deeper into your emotions and find out what triggers the responses you develop. This is even more important, especially when it comes to your negative emotions. Then, find a way to avoid situations that cause these triggers. 

For instance, I used to get extremely emotional when I received certain calls. Every conversation about a particular individual would lead to sadness, distress, and many negative emotions. Such discussions would destroy my morale and even affect the decisions I made when it came to money. Until I decided to limit how much information I received about the said individual. 

All I am trying to say is, recognize your triggers, uncomfortable as they might be, to explore these emotions and stay away from them. In short, jiite kamkutano.  

Related post: What’s Your Money Script and How Does It Affect Your Finances?

3. Get Your Financial Goals in Order 

Do you have a list of your financial goals? Like buying or building a house within a particular time frame, saving for a vacation, or paying off debts by a specific date? 

Financial goals are the road maps to financial freedom. They give you a sense of structure. You can always refer to them and say, ‘I am a step closer to achieving this goal. If I do 1,2,3… I will get there.’ And, when you are emotional, you can always take a step back and consider how acting on that emotion is helping you achieve your financial goals. 

Without goals, you will be running in circles and letting emotions guide you in making financial decisions. As a result, financial freedom will only be a vocabulary to you. 

4. Have The Right People in Your Corner

Whom do you surround yourself with? How do they contribute to your financial journey? I am not saying that you should start blocking your friends. You never know when you will need them, especially those friends that you know you can count on. 

However, you also need to consider how the people in your circle influence your decisions. For example, are you always spending the weekend partying, and all this time, you are borrowing money from digital lenders to keep up? Or are they the type of people who provide advice, and push each other, not just in finances? 

Most importantly, have the right professionals, like financial advisors and planners to help you with your plan and manage finances.

Knowing how to handle your emotions is easier said than done. It will require a lot of work and self-searching on your part. It is also not something that you achieve in a day or two. Sometimes, it even takes years to get complete control. But, if you are willing to put in the work, it will be worth it.