How Emotions Impact Your Wallet

How Emotions Impact Your Wallet

When you think about managing your finances you probably think dollars, sense, budgets, and discipline. But there’s another factor that can have a huge impact on how you manage your money - your emotions.

Emotions are sneaky and can influence logic and reason, risk tolerance, and the choices you make. They can have a positive or negative impact on your finances. Being aware of your emotions as you make decisions can help you pause, recognize how you are feeling in that moment, and decide if you are making the best financial choice for your long-term success.

This article explains the “inside out” of the emotions we commonly experience and how they could positively or negatively impact your finances.

Joy is a feeling of great pleasure or happiness and can lead to:

• Generosity – Joy can lead to increased spending on donations or gifts for others.
• Impulse Spending – Feeling joyful can lead to unplanned purchases that reinforce those positive emotions such as celebratory dinner at a fancy restaurant.
• Treating Ourselves – Joy motivates self-rewarding behaviors, prompting spending on experiences or items that boost happiness such as indulging in a gourmet coffee or happy hour with friends.
• Optimism and Future Preparedness – Joy can inspire you to engage in proactive financial planning activities  such as setting up savings accounts and preparing for future goals.

While joy is a positive emotion with many beneficial financial impacts, it’s important to ensure you aren’t sharing joy beyond your means and potentially creating debt for yourself. Before you make a joyful financial decision, be sure it fits within your budget and won’t create future stress.

Sadness involves feelings of loss, disadvantage, despair, grief, helplessness, or sorrow and can lead to:

• Retail Therapy – When feeling sad, people may purchase and even overspend on items to provide a temporary distraction or mood enhancement. Examples include buying a new outfit, getting your hair done, splurging on a new toy, or dining on comfort food.
• Not Preparing for the Future – Sadness can lead to a lack of motivation to engage in financial planning or saving for the future. Examples include not putting money aside for a rainy day or saving for retirement.
• Avoidance of Financial Tasks – Sadness can cause procrastination and avoidance of important financial tasks like paying bills or budgeting.

It’s normal for everyone to experience sadness from time to time. While short-term bouts of sadness will probably have a minimal effect on your finances, long-term bouts could have a much greater impact. Be sure to reach out to friends, family, or a mental health professional if you experience sadness for a prolonged amount of time. Talking about your feelings could positively impact on your overall mood.

Fear is the belief that someone or something is dangerous, likely to cause pain, or a threat. Examples of financial fear include losing a job, experiencing a health issue or disability, or not being prepared for retirement, and can result in:

• Conservative Spending – Spending money only on necessary items and very little on the things such as dining out, entertainment, new clothing, etc.
• Increased Saving – Fear about future uncertainties often prompts people to save more as a protective measure.
• Delayed Purchases – Fear can cause people to delay major purchases, such as buying a home or car, due to uncertainty about the future.
• Decision Paralysis – Fear of making the wrong choice can lead to the inability to make financial decisions. This can result in missed financial opportunities or failure to take necessary actions.

When it comes to finances, a little bit of fear is a good thing. It helps us prepare for the future and prevent overspending. But it’s okay to treat yourself every now and then as long as you can do so without incurring debt or otherwise negatively impacting your finances. It’s all about the balance between enjoying life and being financially prepared.

Anxiety is a feeling of worry, nervousness, or unease about an imminent event or something with an uncertain outcome. This emotion is similar to fear and can result in:

• Building an Emergency Fund – Anxiety can lead to the creation and maintenance of a robust emergency fund.
• Overcautious Spending – Anxiety can cause individuals to be overcautious with their spending to the point of not spending money on important things like personal care, health-related expenses, or necessary home maintenance. This could lead to negative long-term consequences.
• Financial Isolation – Anxiety may lead individuals to manage finances alone, missing out on valuable advice from professionals, friends, or family.

While a little bit of anxiety about money can reinforce good financial habits such as saving and smart spending, too much anxiety can have a negative impact on various aspects of your life. If anxiety is taking over your financial life, talking it out with a friend, family member, or even a financial coach could help ease your mind.

Envy is a resentful awareness of an advantage someone has over you and the desire to possess that same advantage. This can lead to:

• Competitive Spending – Envy can drive competitive spending, trying to match or surpass the lifestyle of others. This is also commonly referred to as “keeping up with the Joneses.”
• Debt Accumulation – In order to keep up with the Joneses, envy can lead to accumulating debt through excessive borrowing or credit card use.
• Reduced Satisfaction – Comparing oneself to others can diminish satisfaction with personal financial accomplishments.
• Career Advancement – Envy can drive individuals to improve their skillset and seek promotions, higher-higher paying jobs, or additional income sources.

A little bit of envy, or friendly competition, can inspire you to be the best you can be and improve your financial situation. But spending beyond your means could have a long-term negative impact on your finances. Again, it’s all about balance.

Ennui (Boredom) is a feeling of listlessness and dissatisfaction arising from lack of excitement. This can lead to:

• Impulse Buying – Boredom often leads to impulse purchases to create excitement or alleviate monotony.
• Subscription Overload – Signing up for multiple subscription services out of boredom, leading to recurring expenses.
• Not Preparing for the Future – Focusing on spending to alleviate boredom rather than saving for future needs can result in a lack of motivation for short- and long-term savings goals.

It’s important to recognize when you are spending money to cope with boredom and to find budget friendly ways to pass your time instead. Examples include calling a friend, going on a walk, crossing items off your to-do list, or exercising.

Anger is a feeling of annoyance, displeasure, or hostility and can lead to:

• Reckless Spending – Impulse and reckless spending may be used as a coping mechanism for frustration or lack of control. As an example, your significant other spent too much money on a recent shopping trip so you do the same thing just to get even.
• Neglecting Responsibility – Anger can cause one to neglect financial responsibilities, like paying bills or sticking to a budget. For example, your apartment raises rent so you refuse to pay the increased amount because you don’t agree with it.
• Short-term Decisions – Anger can lead to short-sighted decisions, prioritizing immediate satisfaction over long-term stability. For example, you are mad that your car keeps breaking down, so you finance a new one instead of fixing your current car for much less in the long run.
• Avoidances – Feelings of anger can lead individuals to avoid important financial discussions or decision, leading to unresolved financial matters. An example of this includes being angry that your spouse spends too much money, but you don’t want to get into an argument about it, so you just ignore the topic altogether.

It’s probably best to avoid making any financial decisions while experiencing anger. Be sure to pause, take a deep breath, or even “sleep on it” before taking any action. Nine times out of 10 you will probably make a different decision after taking a little time to cool off and clear your thoughts.

Embarrassment is a feeling of shame, awkwardness, or self-consciousness and can lead to:

• Secret Spending – Embarrassment can lead to secret spending habits like using too many credit cards or hiding purchases from others to avoid judgement.
• Financial Discipline – Embarrassment over past financial mistakes can lead to more disciplined spending and saving habits. Examples include rebuilding poor credit, finally having an emergency savings fund saved up, or paying off a mountain of debt. Once you have overcome those obstacles, you never want to go back.
• Help Avoidance – Embarrassment may prevent individuals from seeking financial advice or help. For example, you may have high credit card balances that you want to pay off, but you don’t know where to start and are too afraid to ask others for advice for fear of being judged.
• Ignoring Financial Problems – Embarrassment about financial difficulties can result in ignoring or avoiding problems, allowing them to worsen. For example, reaching your savings goals seems impossible so you don’t even bother to try.

It’s important to understand that financial wellness is a journey, not a destination, and everyone makes mistakes along the way. By finding a trusted source for financial advice and guidance, you can not only learn from your mistakes but also from others’ mistakes. Examples include a friend, family member, or a professional such as  a Personal Banker from FNBO.  Call or stop by a branch location today.