Humans are emotional beings, and as much as we can try to deny it, this often leads to a lot of emotionally driven decisions.
Emotion comes into play particularly when referring to finances and even more so around the holiday season.
Let me know if any of these scenarios sound familiar:
Spending money because you’re stressed or tired
Life is busy and chaotic, and sometimes that means that rather than making well thought out, value-based decisions, we make decisions in the moment.
This often looks like satisfying immediate needs, rather than thinking about the longer term effects.
If you’ve ever bought take-out even though you have plenty of food in the fridge because you’re tired and don’t feel like cooking, you’ve spent money emotionally! You’re paying more in the moment for convenience, and it might cost you again financially in the long run.
Of course I’m not saying that ordering take-out is bad or that you should never do it, but it is important to do so intentionally whenever possible! If convenience is important to you, helps you reduce stress, and is one of your values, then great! Recognize that and plan for it. If it’s not, then in the moment it can be helpful to remind yourself of your values and long-term plans so that you’re not caught up in the emotion.
Spending money to make yourself or others happy
Logically we know that spending money doesn’t equate to happiness, but it’s sometimes easy to get caught up in the moment.
Whether we’ve had a bad day or a great day, our first inclination can sometimes be to spend money. When we’ve had a bad day the goal might be to make ourselves feel better, whereas when we feel good it’s about celebrating ourselves because we “deserve it.” Regardless of the initial feeling though, the outcome is the same: money is spent that otherwise wouldn’t have been.
Though there’s nothing innately wrong with this, if we look a little deeper we’ll begin to recognize that shopping doesn’t really solve the problem long-term, and that there are likely much better ways to find happiness that don’t sacrifice our financial goals!
Spending money as a way of showing your love
Similarly, we often make purchases as a way of showing our love. The holidays are a great example of this: rather than focusing on spending time together, the holiday has become more about showering those we love with gifts.
You should never feel obligated to spend money to prove your love – especially if the purchases you’re making are going to cause you greater financial anxiety or put you in debt.
Consider your values and financial situation, and make decisions that are aligned with that. If a few gifts fit in, great! If not, there are many other (often better) ways to show your love.
How to make less emotionally-charged financial decisions
This year because of COVID-19 and social distancing precautions, it’s likely all of these emotions will be even more heightened – lack of large family gatherings and missing getting together might mean we’re tempted to spend more money to make up for the absences.
However, we all know that the season is not about physical gifts; it’s about presence not presents.
And so, we need to become more aware of how our emotions are affecting how we choose to spend our money.
Here are 3 steps you can take to start taming the emotion around money:
Gain clarity around your financial situation
Go over any debts you have, look at your assets, and review your current income and expenses. What would best serve you and your family right now? What are your long-term financial goals?
Create a budget and financial plan that accurately reflects your current situation and helps to prepare you for the future. This will give you clarity around where to spend your money, and when you have this clarity you’ll likely be less tempted to make some of those impulse purchases.
Get clarity around your values
What’s most important to you? What is the bigger picture for your life and your family? Write down these questions and give yourself time to truly reflect on the answers. This will help you to gain clarity around what’s truly important to you.
Most likely your values will be things like financial security, freedom, and family. Values that will be better served by making more financially sound decisions now!
Before you spend money on an extravagant gift or that sparkly outfit you probably won’t wear, remind yourself to focus on your larger financial goals. I guarantee you not spending more money than you have will feel better than those other items you can’t afford.
Identify emotionally charged financial decisions
In the moment, a great question to ask yourself is, “Will this bring me closer to my goals?” If the answer is no, it’s possible you’re simply responding to an emotion!
Try to answer honestly, with no judgment. Your emotions are not your enemy, they’re important! But responding to them with drastic decisions or impulse purposes might mean they’re controlling you a little bit more than they need to be.
Find other ways to express or satisfy your emotions
This is important, particularly for this holiday season! Instead of purchasing a gift that has no real purpose, let’s instead find other ways to satisfy and mitigate our emotions. Here are a few things I’ll be focusing on this year:
- Time spent with friends and family, Covid conscious of course
- Lessons learned in 2020 and how I can grow more in 2021
- Creating memories
- A few meaningful gifts (especially those that support small, local businesses)
Understanding what is driving your spending can help you to make better decisions, and take control of your money.
Most of the time these emotions are rooted in something deeper anyways, and making purchases won’t help solve them in the long-term.
Continue to remind yourself of the bigger picture and how it will feel to stick to your financial goals and budget.