By Scott Hume
Emotions are a force to be reckoned with. For instance, have you ever let the fear of failure keep you from doing something you know you should do, like investing or even simply creating a budget? How about buyer’s remorse after a big purchase, or any purchase for that matter? If you have experienced these types of reactions, you know firsthand how powerful the role emotions play in our financial lives can be. Psychologists refer to these emotions and beliefs we hold about money as “money scripts.” (1)
The Roots Of Your Money Habits
Do you sometimes feel like the discipline to make rational and well-thought-out financial decisions must be too good to be true? Because no matter how hard you try, you just can’t seem to stick to it? Well, I am sure there are others that feel the same way. These feelings are not uncommon and are most likely due to the emotional and psychological baggage we all carry around relating to our money, otherwise known as our money scripts. And, as with most of the baggage we’ve lugged into our adult lives, these scripts usually start forming at a very young age.
Even though we may not be aware of it, we spend our childhood picking up on how our parents and other significant role models relate to and handle money, and over time, our brains are subconsciously trained to respond in similar ways. If your parents were confident in their ability to make wise investments, you will likely face investing with confidence as well. Contrarily, if you experienced your parents scrounging to get by and often quarreling over expenses, you may experience some pretty strong feelings of guilt when making certain purchases.
The seeds of money scripts are planted in childhood, watered by observation, and eventually grow to influence your emotional beliefs about finances as an adult. For this reason, it is vital to be intentional and diligent in talking to your kids about money and modeling healthy financial behaviors. It is just as important to take the time to examine yourself and understand your money scripts and how they influence your financial behavior.
The Negative Side Of Money Scripts
To be fair, not all money scripts are bad. Some behaviors we learn plant seeds for beneficial emotions about finances. However, other behaviors, such as money avoidance, focus on financial status, or the idolization and even worship of money, can be flat-out detrimental. Unhealthy emotions and belief patterns can lead to all kinds of financial problems, such as financial infidelity, compulsive buying, pathological gambling, and financial dependence. Certain money scripts have been tied to lower levels of net worth, lower income, and higher amounts of revolving credit.
Those may sound extreme, but have you ever let panic during a market downturn take your focus off of your long-term investing plan? Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? Have you ever wreaked havoc on your budget for the momentary high of acquiring something you really wanted? All of these behaviors stem from your personal money script.
Money Scripts Can Be Changed
We often think that if we had more money, we wouldn’t have any problems. But we have money problems because of how we approach money, not necessarily because we don’t have enough. This is good news! We might not be able to drastically increase our income, but we can learn to control our attitudes and perceptions. Our money scripts may be ingrained from childhood, but they are not permanent. With a focused and concerted effort, they can be changed.
The first step you must take in overcoming your money scripts is to identify them. To do this, you must become aware of your emotional responses to common financial situations. Begin to stop and notice your emotional responses to these common experiences:
- Earning money
- Buying things
- Saving for the future
- Budgeting and tracking expenses
- Making financial decisions
- Volatile markets
- Healthy markets
- Meeting with a financial professional
- Thinking about your financial future
How do these things make you feel? Anything that elicits strong emotions warrants further reflection. Keep in mind that negative emotions are not the only ones that can harm your financial life. Some positive emotions, like optimism and self-confidence, can bring about negative results if unwarranted and left unchecked.
How To Manage Emotional Money Decisions
The key to changing your money scripts and developing healthier money habits is learning to control your emotions. You can also build some new, healthy habits that protect you financially and incorporate them into your life. Habits and disciplines such as taking advantage of automatic savings, investing through your bank or employer’s retirement plan, scheduling regular family budget meetings, and enlisting the help of someone reliable to keep you accountable are great places to start. Eventually, you will learn how you respond to emotional triggers and you can then take steps, like mandating a “cooling off” period for yourself, before making any decisions.
Finally, you need to be willing to forgive yourself when you make mistakes. Leave the past in the past and move forward with the new knowledge you have gained. Choosing to forgive yourself of past mistakes frees you up to be more effective with your new tools. As you begin to collect victories, both big and small, you will likely find it even easier to extend forgiveness.
Your Financial Partner
And last but not least, an indispensable resource to utilize on your mission to take control of your finances is your financial professional. At Salish Wealth Management, we believe that knowledge is power and the foundation for wise decision-making. If you are ready to break free of your unhealthy money scripts and make sound decisions that will help you pursue your goals and avoid costly mistakes, reach out to me today at (360) 671-5900 or email@example.com for a free 30-minute portfolio review.
About Scott CFP®
Scott Hume is the founder of Salish Wealth Management and a CERTIFIED FINANCIAL PLANNER™ with more than two decades of experience. Prior to forming his firm, he managed two local financial firms. Today, he works with affluent individuals, families, and local businesses to help them plan and execute their financial goals, providing comprehensive financial planning and cross-border investment management. In his free time, Scott likes to spend time with his wife, Darlene, and children, Claire, Curtis, and Corbin, on their hobby farm raising lambs, chickens, and pigs or visiting his grown daughter, Chelsey, in Eastern Washington. He is an active member of The Rotary Club of Bellingham, Bellingham Chamber of Commerce, and The Estate Planning Council. In addition, he is very involved in the local aviation community and is an active member with Cornwall Church, volunteering his time to financial counseling and serving on mission trips in South America. Learn more about Scott by connecting with him on LinkedIn.