Photo Credit: www.thebalance.com
The human mind and money have an overly complex relationship. A cause of shame, anxiety, depression, and oftentimes thought as a source of happiness, people have long associated money with emotions. And this is why people seldom handle their personal finances logically.
Despite it being in their best interest, people don't save money. People spend too much out of excitement or too little out of guilt. This is especially true for people with a limited budget. Studies show that people with constrained personal finances invest their emotions heavily with money. So with that in mind, here are the key concepts you have to understand in order to have a healthy relationship with money:
Understand your financesHaving a healthy relationship with anything entails having a deep understanding about it. A good grip on the limits and potentials of your personal finances can help manage your expectations and rationalize how you see money. A provocative think piece published on the New York Times highlights how people feel happier with cash on hand rather than investing that cash, even if the latter makes much more long-term sense.In many contexts, talking about finances is still taboo. At work, people don't talk about remuneration. In gatherings, discussions around debt rarely come up. And even at home, any dialog on managing money almost always end up emotionally charged. To attain financial literacy, you have to pierce this veil and have a grounded approach on managing debt, expenses, and savings.
Understand the game
Contrary to what you might think, consumers aren't that savvy. Marketers around the world have always tapped into the fact that emotions are the greatest drivers of consumption. People buy things when it has an emotional presence or relevance.
Knowing the pain points of being a consumer and how marketing utilizes your emotions to target your wallet are the best ways to get ahead. Tricks like making the medium sized drink almost as expensive as the large one to point you in that direction is an old one that remains effective to this day.An online survey commissioned by the housing charity Shelter found that families who rent suffer from anxiety. Especially in highly coveted markets, you need to be aware of certain unsaid rules that can make survival difficult for the uninitiated. For instance, in one of Yoreevo's guides to NYC real estate, the site reveals how co-op square footage in the city is almost always overstated. This makes it very hard to compare units based on stated size alone. These are just some of the reasons why the vicious cycle of anxiety, depression, and guilt in spending is also fueled by consumerism. But you can do something about it. Having a healthy relationship with spending means discerning your needs and wants and making sound financial decisions from that discernment.Furthermore, unhealthy notions of your financial capacity or situation may even lead to a decreased capacity to make money. Some CEOs in this interview think they won't get funding if VCs uncover that they have mood disorders or are stressed psychologically.
Understand yourselfThe most relevant emotions related to money are guilt, shame, fear, and envy. Being more conscious of when and how these feelings come up when you spend, save or invest will help you to be more mindful with money. Mint recommends you forgive yourself when you miss a credit card bill or overspend. Beating yourself up over financial mistakes can end with you sinking even deeper into the cycle of guilt and shame. This should go without saying: never make major financial decisions when you're emotional or in a vulnerable state. But it's easier said than done. Creating powerful habits or rituals like taking a jog or eating a meal first before deciding can aid in disengaging from emotional decision making.A deep understanding of yourself is key in having a level-headed approach to managing or even growing your finances. Personal finance is really one of those fields where emotion fails and logic thrives.
WRITTEN BYBrand Voices