The Emotional Relationship with Money

Money management should be a simple task. It's all mathematics; such a clear-cut approach should guarantee success. But, no, it's not that simple. Throw some human emotion into the formula, and you often have, well, confusion.

Money represents so much more than the dollar bills in your wallet or the numbers on your bank statement. To many, it represents freedom, power, control, and security. Some may feel shame, guilt, frustration, or anger when feel they don't have enough money. But even though the topic of money can bring about a vast array of feelings, it is generally a taboo subject in America; people will often expose their darkest personal secrets before they admit their financial standing to others.

Understanding your own needs can help you make better financial decisions. We don't all have the same emotional needs, so there really isn't one simple, best answer for everybody. Sure, we all could use a little more money, but the similarity usually stops there. But it's not just about having more money in the bank account, it's about being content, or even happy, with the direction your financial road is taking you.

Let's look at a few examples where our emotions can rule over reason:

Keeping up with the Joneses
Our competitive side may come out when the neighbor buys something new; and buying one better than his proves our success to all. But the danger here is that some may allow material items to speak for their self-worth, "If he's good enough to have it, I deserve one, too." We may not even realize we wanted it until we see that someone else has it. It's like the kid who is happy all day until he sees another kid with a cookie; then he throws a fit until he gets his cookie, too.

While most of us won't literally go out and buy something just because our friends did, we often have a need to feel like we are at least as successful as those we associate with. So we may put a higher value on material items than they deserve to have, sometimes to the point of putting off saving for our futures or incurring an unreasonable amount of debt to attain those items. It is a lot of fun to enjoy material items, but it's important to understand why we really want them, and whether they are worth the financial and emotional cost.

Living beyond your means
This is sometimes a side-effect of the competition with Mr. Jones. Or, sometimes it stems from a lack of self-control and only living for the present, without thinking much of the future. Sometimes it's the result of having a good credit rating and limited income, and feeling the need to provide for loved ones. The over-use of credit can give consumers the illusion of having more money and a better lifestyle, and many are guilty of it.

But it's important to realize that while someone with greater income can more easily afford a bigger house and a nicer car, it's just as easy for them to live beyond their means as it is for someone on limited income; making more money only means you will spend more. Living beyond your means is not a temporary solution to a money shortage, it is a bad habit that may be difficult to break even when you do have an income increase. It's important to keep your expenses within the limits of your income, no matter where you are financially.

Making bad investment decisions
Investments of any kind should be carefully researched and planned out. But emotions can take over and foil even the best of plans if you're not careful. Investors may buy at the peak of a bull run, thinking they have to get their share of the good times. Then, after the bust, they sell at a loss, afraid that they'll lose all their money if they hold any longer, and missing out on the rebound.

Greed and fear are responsible for the losses of many investors, but it goes deeper than that. Sometimes there comes a day when you just have to admit to yourself that you picked a loser and cut your losses; it may be difficult, and could lead to feelings of failure or embarrassment. You can kick yourself for it or grow from it; let your investment experience, along with more research, guide you to a better decision next time.

Sticking with a low-yield "sure thing"
It's important to keep some of your money free from uncertainty; bank accounts, money markets, savings bonds, and CDs are great places to put short-term savings. But extreme fear of loss and playing it too safe can backfire and really take a bite out of your money's potential growth. It's necessary to take some risk to reap higher gains for your long-range goals, such as the kids' college tuition, your dream home, and retirement.

Long-term investing usually balances out the highs and lows of the market, and different types of investments have varying levels of risk. Finding a balance between your need for security and your comfort with risk is important to finding an investment to suit your needs. Too risky, and you may give yourself an ulcer thinking about the worst possible scenario. Too safe, and your money will be unlikely to keep up with the pace of inflation.

Marriage and relationship problems due to money
Love will conquer all - until money issues come up. Trusting the one we love should come naturally, but some couples make the mistake of believing that money issues will be resolved simply because they trust each other. Or, they may feel that bringing up the topic of money conveys a lack of trust. When one partner fails to meet the other's expectations, feelings of betrayal and resentment can surface. This can lead to feelings of failure and guilt on the other end. The question, "How can we afford all these bills?" can be answered with a pencil, paper, and a calculator, but it often leads to disagreements and questions about the strength of the relationship itself.

You wouldn't enter into any other business arrangement without a money management plan, but too many married or cohabiting couples do just that. They may not have a clear understanding of their financial responsibilities and goals, both as individuals and as a team. Clearly communicating your needs and desires to each other - about money and everything else - is the only way you both can be sure to reach your own goals while making your partner happy, too.

Know what you need and why you need it
Your upbringing or past relationships can really affect the way you feel about money, and you've probably adapted accordingly. Understanding yourself is the first step to making better money decisions, since we all have our own reasons for the choices we make, financial and otherwise.

Developing a money management style to suit your needs will take balance. There is no one perfect system for everybody; our emotional make-up will play as much of a part in our financial decisions as how much money we make.