It’s rarely a good idea to make important decisions when you’re under stress — especially if that stress is emotional in nature. Emotional distress can lead to poor financial decisions, which, in turn, can deepen your money problems.
When you feel distressed, it’s common to try and ease your feelings by engaging in activities that trigger good feelings, or that at least allow you to temporarily escape from the situation. If you’re not careful, making money decisions based on your feelings can lead to ruin.
Distress, Control, and Money
“Distress often comes from feeling out of control,” says Kathy Gruver, PhD, a health and wellness expert specializing in stress. When you feel out of control, she points out, you do your best to seize control of the situation. The way you use your money is one of the easiest ways to exert control in your life.
“Either the person is very paranoid and concerned about and hoards it, spending little while fearing they don’t have enough,” explains Gruver, “Or the person uses shopping as therapy, spending more than they have while trying to find pleasure and relaxation by buying things they don’t need or want.”
Both of these responses are unhealthy ways to interact with money.
Hoarding money, rather than spending it wisely or investing it, can lead to shortfalls later. It can also mean that you don’t spend on things (like repairs to your home) that are needed. Refusing to spend now can lead to more expensive problems later. And many of us are already aware of the difficulties that arise when you allow your emotional distress to goad you into overspending.
Rather than overreacting to emotional distress, Gruver suggests that you use a few techniques to reduce your stress. Instead of turning to money, she says that you can use meditation, affirmation, and visualizations to help you deal with emotional distress. This will prevent you from making money decisions you might regret later.
Fear and Financial Decisions
The fear that comes with emotional distress can also have a negative impact on your ability to make financial decisions. “New neuroscience research shows that fear, worry or anxiety around your money triggers the amygdala, which is the fear center of the brain” says Dr. Matt Mannino, a neuroscience expert and researcher. “In this state of physiological stress, problem-solving abilities and creative thinking are suppressed.”
The last thing you want to do with suppressed problem-solving abilities is make decisions about money.
When you’re in the midst of a fight-or-flight response, making snap decisions about money — especially what to do with your investment portfolio — can lead you down a path that results in more money problems.
Instead, Mannino recommends that you get out in front of the fear, settling down so that your mind is clearer and you can make better decisions. “Write down all the fears and worries you have regarding your finances. Expose the thoughts running through your brain. This puts you back in control of them.”
How do you avoid making financial decisions when you’re emotionally distressed?