When Financial Decisions Are Affected By Our Emotions

When Financial Decisions Are Affected By Our Emotions

Many of the decisions we make everyday are based on our emotions. In fact, when it comes to making choices about our finances, our emotions are often involved. That can be good or bad. Making long-term financial decisions based on our short-term emotions can be problematic, whether we are too emotional or lack any emotion at all. When we don’t take the time to think about how we will feel in the future about our financial choices, we create an “empathy gap”. When this happens, our financial future can be at stake.

While it’s smart to look at your finances on paper, for example creating a spreadsheet, it’s not always that easy when it comes time to making financial decisions. It’s important to understand how our emotions play a role in our decisions. If our feelings were never involved, it may be a lot easier to make choices and live with them. On the other hand, our emotions can help us make good choices.

Money brings a sense of security for most of us. Knowing where our money comes from, when we will have it, and how much we will have, can increase our trust in our spouse, employer, and financial institution.

If the economy isn’t stable, there is a threat of job loss, or the financial future seems unclear, we may seek other financial resources for help. Our feelings about money are always hiding underneath the surface of our day-to-day spending. They can determine how happy, loved, and respected we feel as well as causing us to feel hopeless when we encounter money troubles.

Knowing who we are when it comes to money means identifying our financial fears and creating more self-awareness about the emotions attached to money. How we viewed money in our childhood has a great deal to do with this. When we understand how our emotions are connected to money, we can make better decisions in regards to our finances. But we also need to understand how to put our feelings aside in certain financial situations to help make rational choices about spending, saving, and investing.

Taking some time to do a personal inventory on your feelings about money can help you be more self-managed when it comes to finances. Ask yourself how you feel about money, what factors play a role in your financial decisions, and how often you make choices based on emotions. You may be surprised with the answers!