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Money and Emotions

Understanding your emotions give you better financial success than avoiding emotions
❝Where we have strong emotions, we're liable to fool ourselves.❞ -Carl Sagan

It's 2004, and there's a long line of people waiting at my teller window. I work part-time at the bank while in college studying economics and finance. I've always been good at math and enjoy it. In fact, it's this love of math that partly drives me to finance.

My courses have gotten quite advanced and demand a lot of my time, so I've had to reduce my hours at the bank. I only work a few hours per day, and often when I get here, it's during the late afternoon rush. That's what's going on today.

Even though a dozen people are waiting to be helped, I'm helping a particularly difficult customer. The customer wants his overdraft fees reimbursed. He tells me some story about how this is just a fluke that all of these checks came in simultaneously. He has his paycheck with him, and if the money was in his account yesterday, he would have had no overdraft fees.

Unfortunately, I've heard this song and dance before, many times. I have to tell him that there's nothing I can do for him. The rules are the rules, and if I let him off the hook, I have to let everybody off the hook. That creates the wrong incentives.

Two weeks later, I find myself in a similar situation to the one my customer was in, standing in line at my bank waiting to plead my case. Because I dropped my hours so much, my paycheck didn't cover all my outstanding purchases. So not only did I bounce some checks, I did so quite literally on payday. I'm in a position where I have to try to survive for two weeks with a negative balance.

In a matter of two weeks, I went from judging other people for mismanaging their finances to mismanaging my own finances. It's embarrassing and stressful, and I now realize that there's more to personal finance than just math. Our emotions play a significant role and our financial lives.


It's tempting to think that personal finance is about spreadsheets and calculators. When people think about personal finance, they often immediately think about either accounting or investing, which can be heavy in mathematics.

While it's true that information and strategies are necessary for a healthy financial life, information alone is not enough. Information is a part of exterior finance, which includes the math and the strategies we need to implement. Exterior finance is important but has to sit on a solid foundation of interior finance. Interior finance involves our relationship with money. It involves things outside the spreadsheet, such as motivation, beliefs, feelings, emotions, and Money Scripts.

Simply recognizing that there is an emotional component to financial decisions can help alleviate some of the stress of trying to find the perfect strategy.

money is not just an information problem


We have six basic human needs that we spend our time trying to meet. Two of these needs are connection and belonging. Connection involves having interpersonal relationships with others, and belonging involves being a part of a group.

If our ancient ancestors were kicked out of their tribe either because they failed to make connections or didn't belong, that was terrible news. We've become very tuned in to what others think about us.

Further, it's hard to figure out how happy someone is, how content they are, or how fulfilled they are. It's easy to make assumptions about someone based on how they spend their money, what profession they work in, or what lifestyle they live.

Money has become a proxy for how successful someone is. It's not intentional, but it happens. The logical conclusion is that we're constantly judging others for their financial decisions, and others are constantly judging us.

This is stressful. It makes it even harder to ask others for advice or even to talk about money in general.

money leads to judgments

Money Scripts® are subconscious beliefs we have about money that we learn these we are growing up in our family systems. A Money Script can be anything, but they tend to fall into four categories. Learn what categories your Money Scripts fall into.


Because money plays such a significant role in our lives, it both impacts our emotions and is impacted by our emotions.

It impacts our emotions because we will have emotional reactions to things that happen to us. We may feel envious of what somebody else has, anger about something our boss did to us, sadness over losing money in an investment, fear about what might happen to the stock markets, guilt for getting promoted over somebody else, or shame for believing we are bad with money.

Financial decisions can be impacted by our emotions because we may make financial decisions or partake in other financial behaviors to elicit certain emotions or avoid other emotions.

It often feels that our emotions are caused by outside events. It feels like something happens, and then we have a thought about it, or something happens, and we do something because of it. In fact, in between what happened and the result of what happened is our belief about the situation. It's our belief of what happened that leads to how we feel about what happened.

Emotions around money are related to our beliefs about what happened


We live in a world where we're often taught to suppress our emotions. In her book, How Emotions Are Made, author and professor Lisa Feldman Barrett explains that often we don't know what emotion we're feeling. As a result, instead of knowing what emotion or feeling we feel, we just know that we're feeling "bad," whatever that means.

Knowing that we feel bad and being with that feeling is a great first step, and mindfulness helps with this. Understanding the actual emotion you're feeling opens up your mind to your experience and helps you make better decisions moving forward. You can do this by understanding what kind of beliefs lead to various emotions.

Authors Karen Reivich and Andrew Shatte write about various belief/emotion links in their book The Resilience Factor. Below are some of the more common connections between beliefs and emotions.

  • Feeling that somebody violated your rights will lead to anger.

  • Feeling that you lost something or that there was a loss of your self-worth will lead to sadness.

  • Feeling that you violated someone else's rights will lead to guilt.

  • Feeling that there will be a threat in the future will lead to fear.

  • Feeling that you don't compare well to others will lead to embarrassment.

Slowing down and investigating the beliefs that led to your negative feelings will help you understand which emotions you're feeling. When you get a clear picture of what is going on and how your mind is interpreting it, you can make better decisions going forward.

slow down to understand what emotion you feel and whether that's the emotion for the situation


I love the distinction between responding and reacting. A reaction is a quick, knee-jerk reflex to something that you were not prepared for. A reaction gives you little time to prepare and is almost reflexive.

On the other hand, a response is something you are choosing to do. Responding is done from a place of intentionality and indicates that you were being proactive.

You are less likely to end up saying or doing something you regret if you respond rather than react. To do that, you have to slow down your decision-making process, understand what's going on in your mind, and choose the appropriate response. It's important to note that you may end up with the same or similar behavior in both cases, but the response happens intentionally, and the reaction happens reactively.

slow down and put space between stimulus and response to reduce errors

Money is emotional and is not always solved with a calculator. There are a lot of emotions attached to money because money is so easily used to judge others. By being curious about which emotion we're feeling and slowing down our decision-making process, we can make more proactive financial decisions that will help us live more intentionally.

You only have one life. Live intentionally.


If you know someone else who would benefit from reading this, please share it with them. Spread the word, if you think there's a word to spread.

Related Money Health® Reading
References and Influences

Adams, Scott: Loserthink

Ariely, Dan & Jeff Kreisler: Dollars and Sense

Clements, Jonathan: How to Think About Money

Feldman Barrett, Lisa: How Emotions Are Made

Housel, Morgan: The Psychology of Money

Kahneman: Daniel: Thinking Fast and Slow

Klontz, Brad, Rick Kahler & Ted Klontz: Facilitating Financial Health

Klontz, Brad, Edward Horwitz & Ted Klontz: Money Mammoth

Klontz, Brad & Ted Klontz: Mind Over Money

McCall, Karen: Financial Recovery

Newcomb, Sarah: Loaded

Reivich, Karen & Andrew Shatte: The Resilience Factor

Richards, Carl: The Behavior Gap

Stanley, Thomas & William Danko: Millionaire Next Door

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.



About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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