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The Human Side of Wealth: How Emotions Impact Financial Decisions
February 1, 2025
When we think about managing money, we often imagine spreadsheets, budgets, and investment strategies—logical processes that require careful planning and clear thinking. But here’s the truth: emotions play a huge role in financial decision-making. Whether it’s the fear of making a wrong move or the excitement of a big windfall, our feelings can drive many of our choices without us even realizing it.
Financial life planning and financial therapy dive deep into these emotional connections to money. By understanding and addressing these feelings, we can make smarter, more intentional financial choices that align with what we truly value.
The Emotional Connection to Money
Many of our financial behaviors are guided by what financial psychologist Dr. Brad Klontz calls “money scripts.” These are deeply ingrained beliefs about money that we develop early in life, often based on family, culture, or personal experiences. These scripts range from ideas like “money is the root of all evil” to “having more money will make me happier.” While these beliefs might seem harmless, they can heavily influence how we handle money, often in ways that limit our financial success.
Research conducted by Dr. Klontz has shown that these unconscious scripts can lead to financial behaviors such as avoidance, excessive risk-taking, or impulsive spending. For example, someone with a money avoidance script might struggle to save or invest because they subconsciously believe wealth is bad or immoral. Understanding these scripts is the first step in changing harmful behaviors.
Saundra Davis, a financial therapist and thought leader, focuses on how financial trauma and values intersect to shape financial behavior. Davis emphasizes the emotional weight of past experiences, whether it’s growing up in a financially unstable environment or experiencing a sudden financial loss, which can leave lasting impacts on how people manage their finances as adults. She advocates for financial education and coaching that addresses money management’s emotional and practical aspects to help individuals move past financial trauma and build healthier financial habits (Davis, 2017).
The Human Side of Financial Decision-Making
Emotions shape our financial decisions in ways we don’t always notice. Imagine you’ve had a rough day and decide to treat yourself to something expensive. That’s an emotional stress response, not a well-thought-out financial decision. Or, on a larger scale, consider the fear of investing in volatile markets. Many people pull out of investments prematurely, not because it’s the most intelligent choice but because fear of loss overrides logical thinking.
Ignoring emotions in financial decisions can lead to costly mistakes. Financial planner Rick Kahler emphasizes that economic success isn’t just about technical strategies; it’s also about understanding the emotional side of money. Research shows that when emotions are left unchecked, they can cause long-term financial harm, like staying in debt or missing out on investment opportunities.
Bridging Emotions and Finances Through Financial Life Planning
This is where financial life planning comes in. Financial life planning goes beyond numbers—it’s about helping individuals create a vision for their lives and aligning their finances to support that vision. As a financial life planner and therapist, I help clients discover what truly matters to them and design their financial strategy around those goals. When we understand both the emotional and practical aspects of money, we can create a financial plan that grows wealth and enhances overall well-being.
We can tackle emotional barriers head-on by integrating financial therapy into life planning. Clients often find that when their financial decisions are connected to their values and life goals, they feel more empowered and intentional with their choices.
Tools and Techniques to Address Emotional Barriers
Managing the emotional side of wealth doesn’t have to be complicated. Here are a few strategies to help recognize and overcome emotional barriers to financial success:
- Track Emotional Triggers:
Start by paying attention to how you feel when making financial decisions. Are you spending because you’re stressed? Are you avoiding an investment because of fear? Recognizing emotional triggers can help you better understand your behavior. - Pause Before Major Decisions:
If you’re about to make a significant financial move, take a moment to pause. Ask yourself, “Is this decision based on emotion or logic?” This brief pause can help you separate feelings from facts. - Seek Professional Guidance:
Financial therapists and planners can provide valuable insights into the emotional side of money. With guidance, you can develop a healthier relationship with money and make more informed financial decisions.
Conclusion
At the end of the day, financial success isn’t just about maximizing returns or minimizing expenses—it’s about understanding how emotions impact the way we handle money. When we become aware of the emotional side of wealth, we can make more thoughtful, intentional choices that lead to both financial and personal fulfillment.
If you’re ready to explore how your emotions might influence your financial decisions, I invite you to schedule a consultation. Together, we can create a plan that aligns your money with your values and life goals.
References:
- Klontz, B. T., Britt, S. L., Archuleta, K. L., & Klontz, P. T. (2015). “Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory.” Journal of Financial Therapy.
- Kahler, R. (2005). “Conscious Finance: Uncover Your Hidden Money Beliefs and Take Charge of Your Life.” Kahler Financial Group.
- Davis, S. (2017). “Financial Coaching: The Role of a Financial Coach in Addressing Financial Trauma.” Financial Finesse.
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