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Protect Your Money From Emotional Sabotage

Mindful Finance

You may think that if you want to increase your financial well-being, the time spent on financial data, like Morning Star ratings and “expert” advice from major financial news outlets, is more effective than the practice of mindfully utilizing emotions.

Yet, there’s no escaping the reality that we are human beings with minds and emotions. Any decision we make is processed through our bodies, effected by our mindset and emotional state. “The individual emotional state strongly affects how clearly we perceive the reality and how well we can act on it,” say the researchers at the Mindful Finance Institute.

The task is to incorporate our emotions into good financial decisions. How do we pause, confront, and alter our mindset to make better decisions that lead to financial wellness? 

What emotions, if not mindfully processed, do the most damage to the financial decision-making process? “Research has found that negative emotions hit us with an intensity that’s two-and-a-half times as strong as positive emotions because they are signaling a disturbance you should tend to,” says Maggie Baker, Ph.D., author of Crazy About Money: How Emotions Confuse Our Money Choices and What to Do About It. The good news is these negative emotions “can motivate you to rectify a problem, and come up with creative solutions,” says CFP Amy Jo Lauber, author of Living Inspired and Financially Empowered.

Therefore, in this blog, we consider six common negative emotions that can sabotage your finances and suggest ways to utilize them instead to signal behavior that will lead to your finances flourishing.

Emotion #1 – Anxiety

Money-related anxiety can keep people from taking appropriate financial risks. Whether it is a fear founded in past experiences or fear of the potential mistakes, paralyzing anxiety can result in poor financial decisions – like being too conservative with your investments or buying, even over buying, a financial product you don’t need. Also, high anxiety can lead to impulsive decisions that are often financially devastating. During the beginning of the volatile “COVID-19” market, intense anxiety drove many people to cash out of their investments at the bottom of the market.

Try this: First, allow yourself to ‘fret’ for five minutes. Give yourself permission to ‘feel’ it. Take a moment to discern the source of your anxiety. Then commit to taking one action that might reduce that anxiety. That could be getting a second opinion on your investments or scheduling a review of your financial risk tolerance. (Wealth Analytics has a risk tolerance test – email for a link). Also, our brains are trained to recognize danger, and we are often drawn to “facts” that activate our “threat-mode.” Time spent on reports, “facts”, and checking accounts can add unnecessary anxiety. It may be worth reducing time on these topics. After all, our account balance is not a physical threat to our body, as our brain would like us to believe.

Emotion #2 – Envy

Trying to keep up with the Joneses often comes from feeling envious. So-and-so just got a new car, bought a new home, retired early, etc. People are quick to compare! What we forget to think about is our unique situation vs. the Jonses’ situation. Maybe the Joneses are drowning in debt to afford that purchase. Bank accounts and financial wellness pay the consequence if we allow this emotion to take impulsive action.

Try this: First, determine what exactly makes you envious. Are you missing something in your life? If it is a nice vacation you’d like to take, turn this emotion into action and budget for such a trip. If you are already saving all you can for the things you need in your life, and no amount of budgeting will help your wish come true anytime soon, try focusing on what you DO have and not what you DON’T have. Create a gratitude journal to shift your thoughts and create new neural highways in the brain. When given the challenge to list what you are grateful for, you may come to realize how wealthy you truly are!

Emotion #3 – Regret

As they say, hindsight is 20-20. We’ve all made money mistakes (maybe from anxiety or jealousy!). Ten percent of Americans say their biggest regret is finance-related, according to a Northwestern University study in 2012. Regret and remorse can cause one to go into a victim mindset and not take the necessary steps to progress. These emotions can also drive us to take action to improve our financial situation. For example, do you accept defeat if you regret not contributing to your 401(k) earlier, or do you jump at the next opportunity to contribute?

Try this: When experiencing regret, use it as a trigger to learn and grow. Make it a normal part of being human and get creative in your new approach to financial decision making. This might involve self-compassion and forgiving yourself. Humans make mistakes and learn from them. Begin each new day with the learnings you now have.

Emotion # 4 – Embarrassment

Everyone is doing it, and you are embarrassed that you don’t have funds allocated to be a part of it. Embarrassed that you don’t want to split the check because you ordered less to avoid spending more, or embarrassed to not join the ski trip that your friend group is going on because student loans are taking up much of your modest salary. Embarrassment can cause us not to speak up and spend money we don’t have.

Try this: Be honest. Make financially-responsible plans and budget for your financial well-being. And then let your friends, family, partner know. People close to you want to support you, and they know financial wellness is a big part of overall well-being.

Emotion #5 – Sadness

Windfalls can accompany big life events – inheritance comes with the death of a parent, or a large settlement comes with the end of a relationship, as in divorce. The money, as a result, can be a symbol of loss and a source of grief. People grieving can find themselves avoiding making financial decisions and may even refuse to use the money to create financial wellness.

Try this: Find an empathetic, trusted financial advisor to help make the necessary financial decisions in order to take the pressure off. Knowing that your money and finances are being handled might even help relieve some sadness. Also, find ways to feel and express your sadness. Alone time in nature, listening to beautiful music, or visiting with understanding friends can be appropriate outlets to help alleviate sadness.

Emotion #6 – Feeling Overwhelmed

We’ve all been there. Too many decisions to make, too many deadlines to meet, too many options to choose from, too many stressors to prioritize. Whether it is tackling the mounds of credit card debt, choosing investment funds that your retirement depends upon, or finding the right financial mentor, being overwhelmed can be paralyzing.

Try this: Breathe. List what is overwhelming. Describe it. Then when everything is out on the table, think of one little step you could take. Start small. This is the nudge you need to release the ‘freeze’ instinct. If you are ready, list the next few steps that could lead you to achieve your goal. This will help you regain a sense of control and keep you mindful and balanced. If the overwhelming feeling is, well, too overwhelming, try exercising to work up a sweat. Physical activity has been shown to reduce stress, enhance overall cognitive functioning, and improve mood and sleep – all of which can give you a sense of command over your body and your life.

Bonus Emotion #7

Although negative emotions generally involve more thinking, the information is processed more thoroughly, and we use stronger words to describe them, we cannot overlook the dangers of unbridled positive emotions that can have negative effects on our ability to make good financial decisions. Bonus Emotion #7 is that positive, optimistic emotion that often keeps us in denial. The attitude that it’s all going to be okay can allow us to continue to overspend and forgo the necessary planning to attain financial wellness.

Try this: Sprinkle some reality into your optimistic outlook. If you consistently find yourself overdrafting your account, say, “It’s all going to be okay, AND I will go over my budget every week.” If you have been making big life changes and ignoring how they may affect your financial plan, say “It’s all going to be okay, AND I will make that appointment with my financial advisor this month to revisit my plan.”

The bottom line: be mindful of your emotions and practice these tips. We have them for a reason. Name them, feel them, and then use them to motivate you to make the decisions that cause your finances to flourish.

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