There are very few things in life that evoke as strong of an emotional response as an unexpected major expense. We’ve all experienced the elation of payday and felt the sting of frustration when we have to pay for that unforeseen expense. Unfortunately, many of us have developed money habits that are centered around an emotional response.
You might be overspending on non-essential things because they make you feel good, instead of saving that money. Or you might burn yourself out working because of the fear of never having enough. Whatever the emotion that motivates a financial decision, it’s important to know the impact those decisions can have on your financial situation.
How do money habits develop over time, and how can we stop our emotions from being the master of our money? Let’s dig in and find out.
The Money Script
Do you sometimes feel like the discipline to make rational and well-thought-out financial decisions must be too good to be true? Because no matter how hard you try, you just can’t seem to stick to it? Well, I am sure there are others that feel the same way. These feelings are not uncommon and are most likely due to the emotional and psychological baggage we all carry around relating to our money, otherwise known as our money scripts. And, as with most of the baggage we’ve lugged into our adult lives, these scripts usually start forming at a very young age.
Even though we may not be aware of it, we spend our childhood picking up on how our parents and other significant role models relate to and handle money, and over time, our brains are subconsciously trained to respond in similar ways. If your parents were confident in their ability to make wise investments, you will likely face investing with confidence as well. Contrarily, if you experienced your parents scrounging to get by and often quarreling over expenses, you may experience some pretty strong feelings of guilt when making certain purchases.
The seeds of money scripts are planted in childhood, watered by observation, and eventually grow to influence your emotional beliefs about finances as an adult. For this reason, it is vital to be intentional and diligent in talking to your kids about money and modeling healthy financial behaviors. It is just as important to take the time to examine yourself and understand your money scripts and how they influence your financial behavior.
The Negative Side of Money Scripts
To be fair, not all money scripts are bad. Some behaviors we learn plant seeds for beneficial emotions about finances. However, other behaviors, such as money avoidance, focus on financial status, or the idolization and even worship of money, can be flat-out detrimental. Unhealthy emotions and belief patterns can lead to all kinds of financial problems, such as financial infidelity, compulsive buying, pathological gambling, and financial dependence. Certain money scripts have been tied to lower levels of net worth, lower income, and higher amounts of revolving credit.
Those may sound extreme, but have you ever let panic during a market downturn take your focus off of your long-term investing plan? Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? Have you ever wreaked havoc on your budget for the momentary high of acquiring something you really wanted? All of these behaviors stem from your personal money script.
Money Scripts Can Be Changed
We often think that if we had more money, we wouldn’t have any problems. But we have money problems because of how we approach money, not necessarily because we don’t have enough. This is good news! We might not be able to drastically increase our income, but we can learn to control our attitudes and perceptions. Our money scripts may be ingrained from childhood, but they are not permanent. With a focused and concerted effort, they can be changed.
The first step you must take in overcoming your money scripts is to identify them. To do this, you must become aware of your emotional responses to common financial situations. Begin to stop and notice your emotional responses to these common experiences:
- Earning money
- Buying things
- Saving for the future
- Budgeting and tracking expenses
- Making financial decisions
- Volatile markets
- Healthy markets
- Meeting with a financial professional
- Thinking about your financial future
How do these things make you feel? Anything that elicits strong emotions warrants further reflection. Keep in mind that negative emotions are not the only ones that can harm your financial life. Some positive emotions, like optimism and self-confidence, can bring about negative results if unwarranted and left unchecked.
How to Manage Emotional Money Decisions
The key to changing your money scripts and developing healthier money habits is learning to control your emotions. You can also build some new, healthy habits that protect you financially and incorporate them into your life. Habits and disciplines such as taking advantage of automatic savings, investing through your bank or employer’s retirement plan, scheduling regular family budget meetings, and enlisting the help of someone reliable to keep you accountable are great places to start. Eventually, you will learn how you respond to emotional triggers and you can then take steps, like mandating a “cooling off” period for yourself, before making any decisions.
Finally, you need to be willing to forgive yourself when you make mistakes. Leave the past in the past and move forward with the new knowledge you have gained. Choosing to forgive yourself for past mistakes frees you up to be more effective with your new tools. As you begin to collect victories, both big and small, you will likely find it even easier to extend forgiveness.
Your Financial Partner
And the great news is, you don’t have to do this alone. Sometimes the best remedy for overcoming emotionally led decisions is someone walking alongside you, encouraging and coaching you. This is why our goal at Stratos Wealth Partners is to help you build a financial road map that gets you to the future you want to live. Everyone is unique and has their own financial hopes and dreams; it’s our job to partner with you so you can realize those dreams. Schedule a complimentary introductory call by reaching out to us at 330-576-3912 or lguiney@stratoswp.com.
About Liam
Liam Guiney is partner, financial advisor, and client portfolio manager at Stratos Wealth Partners, an independent investment advisory firm providing personalized financial plans to help clients pursue their goals. With over 20 years of experience, Liam is dedicated to walking his clients through their financial opportunities and challenges, simplifying the complex so they can focus on what’s most important to them. Liam is known for building long-lasting relationships and focusing on individual needs to develop strategies that will help his clients prepare for their ideal retirements.
Liam graduated from the University of North Carolina Greensboro with a bachelor’s degree and earned a Master of Science at Wake Forest University. He is also a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not working, Liam spends his free time with his wife, Alice, and their son, Nicholas. You can often find him exercising, golfing, or supporting his favorite community organizations through fundraising and volunteering, such as Catholic Charities, the Make-A-Wish Foundation, and cancer research organizations. To learn more about Liam, connect with him on LinkedIn. Or watch his latest webinar: 5 Questions You Should Answer Before You Retire.
This material was prepared for Liam Guiney’s use. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.