Money is an emotional topic for most people. And that’s exactly why most people make stupid money mistakes. Here’s how to fix that so you don’t do the same.
Recently, someone asked Kali and Eric why they’re “good with money.” The answer? Ultimately, they agreed it came down to this one thing: they keep their money and their emotions separate.
That inspired today’s episode of Beyond Finances, which is all about why we don’t talk about money, how emotions can get in our way, and what we can do to solve the potential problems that arise when you make highly charged, emotional money moves.
Jump into the episode here, or check out detailed show notes and takeaways below:
Our Favorite Shareable Moments & Takeaways
- When we’re emotional about something, it becomes tough to have a reasonable conversation about it — and even harder to make rational decisions with it. That’s why most people aren’t good with money: it’s an emotional topic.
- The way you feel about money matters because how you feel impacts how you act. Your beliefs dictate your behavior… and your behavior forms habits over time.
- If you want to take some of the emotion out of a situation, understand there’s “what happens” or the event, and then there’s what you make that mean or how you interpret it — and those are separate things.
- We form beliefs in a haphazard way; we hear things and we believe them to be true or not. Rarely does further investigation to find the truth of the matter come into play! And that can get you into big trouble with money.
Further Reading & Resources Mentioned in the Show
- Money Beliefs and Financial Behaviors report, via The Journal of Financial Therapy
- Read more about how early we form money beliefs and habits via this PBS article
- Putting something between your emotions and your money is one huge value of working with a financial planner; your planner is often the thing that stands between you and a big, irrational, overly emotional money mistake
- Highly recommended reading if you’re interested in how humans think, behave, and make decisions. (We haven’t linked to these for purchase, because we recommend you look for these titles at your local library instead!)
- Thinking, Fast and Slow, by Daniel Kahneman
- Predictably Irrational, by Dan Ariely
- Thinking in Bets, by Annie Duke
Full Show Notes
0:36: People don’t really talk about money. Which is EXACTLY why we should talk about that topic! Why don’t we feel comfortable talking about our finances? Why don’t we feel comfortable with our finances in general?
0:42: Not talking about money is bad for all of us! If we never get this stuff out in the open, then we don’t get an opportunity to fact-check ourselves or to make sure that what we believe about our finances is actually in line with reality; that you’re not hanging on to misinformation.
1:09: You’re also never going to learn and grow, because if you’re not talking about something you’re not asking questions about it!
1:39: People’s beliefs about money, and therefore the actions they take around money, tends to come from what they remember or what they experience. Beliefs are also formed from what you hear and read… not necessarily what you research and vet as true.
2:02: So why is it so difficult for us to talk about it (since there are serious pitfalls to staying silent)?
2:34: Two things stop us from talking about money more:
- A lack of education or understanding
- How emotional we get about money… especially since we often make money MEAN something (as in, more money = more status, or, less money = less status. We often make the amount of money we have or don’t have mean something about ourselves as people.)
2:55: If you have an emotional tie to money, you’re going to avoid conversations about it because it’s uncomfortable.
3:10: This isn’t a new thing; researchers and experts have actually developed a “measure of money beliefs” and money attitude scales. You can check that out here for more details on how our beliefs/feelings impact our behaviors with money.
4:04: This list goes to show how broad-reaching our feelings about money are. And talking about highly-emotional, charged topics is tough to do. Eric believes this is why we don’t talk about money — because as a society we like to avoid our emotions!
4:44: Kali thinks the issue is more the fact that we’ve become very attached to the idea of “having money” but we don’t really know WHY. We just want more, but we don’t have the awareness to realize that what we’re actually seeking is not necessarily more money but more power, respect, status, love, etc.
5:27: But bottom line, it comes back to emotion. When we’re emotional about something, it becomes tough to have a reasonable conversation about. It also becomes hard to make rational decisions around.
5:44: The reason this is so important is NOT because you need to change your mindset or your feelings to magically start manifesting some cash. [Insert eye-roll here.] Yes, we’re talking about emotions — but don’t think we’re not staying grounded in reality!
5:58: The way you feel about money matters because how you feel impacts how you act. Your beliefs dictate your behavior… and your behavior forms habits over time.
6:57: The problem is that our emotions get in the way of rational decision-making (whether you know it or not). So the logical solution is to remove the emotion from the situation. Easier said than done.
7:16: Your actions are so closely linked to your emotions, and it takes a lot of work to separate the two — but it can be done. And to be clear, it’s not about NOT feeling. It’s understanding you have these emotions, then letting them go and not taking action based solely on your first feelings or impulses.
8:10: You’re human, which means you should feel stuff. The key is to build the ability to pause, step back from whatever emotion you’re experiencing in the moment, and consider how you would like to respond instead of simply reacting.
8:44: Be super happy! Be really sad! Get angry and vent and rant and let it all out! Feel all those things — AND ALSO be aware of when you feel those things.
9:21: You have to set aside what you think an event means and focus on what happened. In other words, what happens (and event) and what you make it mean or how you interpret the event are two separate things. But as humans most of us combine those two things so we can’t separate our perception from the event itself.
9:26: Eric provides a real-life example of this that he’s experienced through his speaking and presentations he often gives to large groups.
12:31: You can’t just rely on your assumptions about what happened, based on what you think or what you interpreted something to mean. You might be completely off-base, and your assumptions can cause you to react in a way you might later regret. Ideally, you’ll have all the facts before you act. But “having all the facts” is not something that often happens in real life, in real time — so at the very least you know you can avoid acting solely on your assumptions. Know that you have made these assumptions, and the facts might not be the same as what you think something means.
12:41: If you want to take some of the emotion out of a situation, understand there’s “what happens” or the event, and then there’s what you make that mean or how you interpret it — and those are separate things.
13:01: Acting rationally around your money is the key to financial success. We just need to make sure we’re aware of our thoughts, aware of what we know, and aware of what we know we don’t know.
13:30: It also helps to understand that along with feelings, we have stories and beliefs we simply make up about money (or form with very little basis in fact). By age 3, kids can grasp basic money concepts. By 7, you already have money habits!
14:02: The crazy thing about this? At that age… you’ve really only been hearing from parents, teachers, and family. And that’s what your money beliefs TODAY are likely based on. (Yikes.)
14:37: A good exercise to try: Ask yourself about your earliest money memories. How might those connect with your behavior today around your finances?
15:24: We’re not immune for this! We give a few examples of our own money memories that shaped how we act around money even to this day.
16:59: Your money beliefs are not always bad, by the way. You can have experiences that actually lead to positive or beneficial behaviors today. The point is that you form these things so early, and because talking about money is just not something we do, we never really get a chance to check your belief against someone else’s knowledge or experience or beliefs. You’re operating in a vacuum, or without context, which can mean missing out on new (better) knowledge or insights.
17:24: Kali loves Annie Duke’s book, Thinking in Bets, and shares a passage from that book that explains how we forms beliefs. (It’s not how you think.)
18:04: We form beliefs in a haphazard way; we hear things and we believe them to be true or not. Rarely does further investigation to find the truth of the matter come into play! And that can get you into big trouble with money.
19:29: You need to understand how you think and process things. You need to be aware of what your typical knee-jerk reaction is. Not to NEVER experience emotions or impulses again — but to know your own habits and patterns. Only by being aware can you have the ability to PAUSE and ask yourself, “is this really what I want to do right now… or do I want to make a different choice here?”
19:19: Eric gives an example of this happening to him just two days ago, when he went to invest more money into his 401(k).
21:42: The fact that Eric was able to pause and think and give himself space to consider his actions instead of just reacting to them allowed him to make a better, more strategic decision in the moment.
21:58: Also — don’t beat yourself up over your thoughts or emotions. Berating yourself does you no good. Feel what you feel and know that your thoughts/emotions don’t have to dictate your actions. You have the choice over how to respond.
22:54: Check out Predictably Irrational and Thinking, Fast and Slow if you want to learn more about behavioral finance and just how the human brain processes information and works in general.
23:13: Eric mentioned “having a strategy,” and that’s key. You need (A) the space to stop and think before reacting, but also (B) a strategic plan you can refer back to when you get emotional and can’t think clearly so you don’t lose your way in the heat of the moment. Build the plan before the emotions are there.
24:36: A financial planner can help you here (hey, we know some folks). But yes, you can also DIY your own plan. Just note it’s harder to be objective; looking at your own money and trying to manage your own emotions is really hard. Outside perspective, accountability, and guidance are extremely helpful because you can get out of your own head, have someone to talk through ideas with, and have an expert by your side who can not only share information but also give context to that information so you understand how it applies to your real life.
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