I’m fascinated by the internal emotional worlds within each of us. That’s probably why I managed to get a graduate degree in counseling. Our internal worlds impact everything we do. From our willingness to take risks, our ability to pursue healthy relationships to how we spend our money, time and gifts. Off and on I address issues with money. The financial journey my wife and I have been on has been incredibly challenging, but also deeply rewarding and beneficial to each of us individually and to our marriage.So, I’ll share some of my thoughts and things I’m learning along the way. This begins a series of posts on the Emotions of Money.
For most of us, managing money is technically as simple as an elementary school math problem. Sure, you have your amortization, depreciation, compounded interest, etc, but that’s usually handled by someone else and you just get a monthly statement with a total number on it. It’s just addition and subtraction. No calculus needed. Then why do so many people stink at dealing with money? Why do fights start over it? Why do terms like “retail therapy” sadly exist? Why do marriages end over money? Why are so many of us so bad at it? Look, money’s not emotional. But you sure as heck are! And so am I.
I work in institutional real estate investing (yes, I know, it’s a ways off from a degree in counseling, but I do have a MBA as well which makes more sense of it). I handle the acquisition and management of hundreds of millions of dollars in real estate for Wall Street investment firms. When my firm make decisions on behalf of institutional groups it’s pretty black and white. If the numbers work, we can buy something. If they don’t work, we pass. It’s really that easy. It’s emotionless. What makes personal finance so different is that it’s emotional. For as educated as the general public is in the developed world, it’s amazing how staggering the debt balance we carry. Addition and subtraction isn’t that hard, even with commas and decimals. It’s just larger numbers and most every phone in circulation today has a calculator that can easily handle the work. So, what’s the deal? Why do you abandon all your sense or intelligence and haul off and buy a new car, move into a larger house, finance a vacation, buy new toys with money you don’t have or go to a school you can’t afford all on money you don’t have but can borrow for an easy monthly payment? Why? It feels good. You deserve it. It’s justified.
Look, I have been as bad as anybody. An avid triathlete I spent tens of thousands of dollars traveling the country racing triathlons, buying new gear, etc. All my friends were doing it. So, I did it as well. Sure, I didn’t accumulate debt to do it, but I rarely said no. I did what I wanted to. Same thing happened when I went to college. Everyone I knew was going to college. And most were going to private colleges. I didn’t even think about any state schools. I went into private college education and ran up substantial debt because that’s what I wanted in that moment. I had little focus on my future. I don’t think I realized that I’d ever be 30 something years old, much less 40 or 50. What a disconnect! Being a slow learner, I did it again with grad school. At 30 years old I was tired of my job and wanted a change. I wanted out fast and grad school afforded that exit without me looking like a flake. So, I jumped in and ran up over $50,000 in debt. Poor decisions based in the moment. Based in the emotions of reward and entitlement. Based on seeing everyone else doing it the same way. Based on the status quo.
I’ve made a lot of money decisions in my life. We all have. Looking back, I realize some of mine were emotionally charged and slowly led to tough situations. Were any of yours driven by emotions? How can we live forward aware of how our emotions impact our spending habits? How can we keep them in check to make rational decisions that yield greater long term freedoms?
Here are some things I’ve learned:
- We’re emotional beings and those emotions show up in all aspects of life, including managing money
- FOMO (fear of missing out) can lead to spending money to quell emotional tension
- Slow down. Decisions made in intense emotion are rarely wise
- We often forget the future is coming and what we do today impacts it
- It’s elementary math
- I need a road map and a guide. There’s much to learn about money. Finding resources and mentors helps along the way
- Creating boundaries helps to manage emotions. Meaning, budgets create freedom not constraints.
I’m sure much more will come to mind, but this gets the conversation started.