Ways to Deal with Your Emotions and Prosper

by David Ning · 7 comments

Does a big raise ever not feel good? And have you gotten a pay cut and not feel bad?

It doesn’t matter what the original salary was and how much it’s changing. Though there are no references, getting more is almost always better and receiving less than what we are used to just plain sucks. Why does making $50,000 after a $5,000 raise feel better than making $90,000 after a 10% cut?

Human nature.

Like it or not, our emotions play a huge role in our journey to financial freedom. There’s no way around it, just as staying dry is impossible if you want to swim. The good news is that like swimming, you can be happy and wet at the same time as long as you don’t drown yourself. Here’s how to apply that floating device to your finances, should you need it.

1. Admit It Exists

You’d think that by now, everyone already knows they are emotional. Not true. Just as most people believe that they are an “above average” driver (which by definition cannot be true), most people believe that they are better than others in controlling their emotions. It’s never what you know that hurts you the most, and it’s not what you don’t know that hurts you the most either. What always turns out to be the most devastating is what you know to be true, but turns out to be totally false. Overconfidence always makes you pay. Admit that failure can happen, and prepare for it.

2. Have a Plan

Though everybody knows of the importance in having a plan, the ones that have one are definitely the minority. Reasons include laziness of course, but I believe most people don’t plan because they don’t know how. Financial advisors are a great source to tap into, but how many of you actually went out of your way to speak with one regularly?

Plans don’t stop at the big picture either, as even small financial steps could benefit a plan of their own. Do you budget? Have a plan to cut down and control your expenses. Do you trade stocks and bonds? How about making a plan on why you bought a security and the list of criteria that will make you sell? If you can’t come up with one, don’t trade. Perhaps investing for the long term is a better approach.

3. Analyze the Results

Nothing teaches you faster than living through the consequences of your actions. Reading helps, but it’s much more effective when you see the results for yourself. You can read about bear markets and what “not to do” a thousand times, but once you live through a week of the Dow dropping more than 1,000 points, you instantly understand what fear means to you.

4. Keep Practicing

No one is perfect, and while some learn faster than others, everyone benefits by repetition. If you get burned touching the stove when it’s hot, you will eventually stop doing it no matter how insensitive you are.

Same with finances. Once you see that you are reacting in a way that is hurting your finances, you will slowly but surely stop doing what you are doing.

Believe It, see it, and keep trying to work around it. Do all that and you shall prosper with the rest of us.

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{ read the comments below or add one }

  • Witty Artist says:

    I think we come to take the best decisions after we understand our emotions and feelings. We can’t ignore them completely and be only rational. Because our conscious and subconscious parts have to work together – it’s like having both the left hand and the right one – they help and complete one another. We have to keep trying and practicing to see what works best for each of us.

  • don says:

    my proplem isthat i let others like mysister kept me from growing financialy she is very good and cheap with her money and uses my nephew to get money froom me and not spend hers and it emmotional because bi love the little guy and i wont let him go with out i know she has the money to do what i do for him and it wouldnt be bad if the money she didnt spend on him went for some thing like his gollege fund or what ever but it dont so my ideal is to cut her of any body else have a simualer situation please let me know how your dealing with it

  • Brian Holder says:

    Certainly emotion is involved in our decisions. I think its good to be aware of it and try and avoid falling into marketing traps. However, sometimes certain types of people can also try too hard to be “rational” decision makers, and despite a strong emotional preference for a certain product/choice they will force themselves to make the choice they believe is better based on some lineup of facts, but in the end are never actually happier with it.

  • Squirrelers says:

    Very interesting topic. This is an area I have wanted to spend more time exploring.

    My thoughts have been that it’s hard to truly separate the emotional side of things from most decisions we make, at some level. Sure, we do a lot of things based on necessity. But many of our purchases choices are based on emotions. For example, choosing one brand of shampoo over another, based on branding, and how it appeals to our emotions. Could this be the case on some level with financial decisions? I have to believe that there are emotional drivers behind such decisions. They exist in purchase decisions for consumer products, so why not with personal finance? Accepting and understanding it is a key step.

    Having said all of this – while emotions come into play, I also have to believe that unbiased, rational thought is most likely to lead to the most effective decisions.

  • I thought I was less emotional with my investments too. But you’re right, You do get worked up with every financial decision you make. In a way that can be good. You track things better if you are emotionally attached to it (just like you track your kids). But you have to know when to cut your losses.

  • Cd Phi says:

    This is exactly where I’m at right now in my life. I totally failed a test and now I have a mediocre grade in the class. We have one more test and a final to go, so I am preparing as if I will fail that way it’s better to overprepare.

  • Thanks for a great post (and much needed).

    The emotional side – or “personal” side of personal finance – is typically the most neglected yet most telling facet of an individual’s financial picture. I’ve heard it said that personal finance is 20% math and 80% what you see when you look in the mirror. Scary, huh?

    The emotions manifest themselves as behaviors and those behaviors are either driving someone toward or away from what will benefit them. Great note on practice making perfect; that’s the only way we can strengthen our financial muscles – repetition.

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