The power of emotions on money

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If you have the power to change the past, how many past financial decisions will you improve? Most often the way we manage our money is influenced by our emotions. An emotion is defined as a strong and powerful feeling about something that often affect your ability to make an informed decision. Examples of emotions includes happiness, love, anger and fear. The power of emotions on money is that they can either build you or destroy you financially.

The power of emotions on spending

How many of you have a habit of going for shopping when they are stressed? Most of the time you end up buying things that do not add any value to you. The reason why many people enter into debt is because of their emotions. When you take debt for spending, you take what is meant for the future for present consumption. Many beautiful weddings are sponsored by debt – emotions!

Many people buy what they can not afford because their decisions are driven by emotions. Sometimes you buy something thinking that you will get happiness from having it but the moment you get it, you are already attracted to another thing. The cycle continues and if your emotions are not stronger than your mind, you keep on relying on debt. This is the reason why anyone who plans to attain financial freedom is not encouraged to have a credit card. Have you ever wondered why great ideas are mostly born out of pain? When you are broke or in distress, you use your mind to think of several options and you are not driven by emotions.

Moreover, when you are shopping for second hand assets, it is wise to avoid emotional decisions. Things are not the way they appear to be. Most of the defects will be hidden in such a way that if your choice is based on emotions, you can overlook any red signals. The moment you let go of the feeling, you will start to regret the decision. It is advisable to avoid signing a contract to buy or acquire any big asset until you can prove that the decision is good.

In addition, do you know that when emotions take over, you will lose the power to negotiate? Somehow you will be overpowered by the fear of losing the deal. If the seller can notice the sense of desperation in your interest, he/she can easily attach a high value on what you want to buy. Due to the lack of judgement that comes with emotions, you can end up settling for an overpriced commodity. In this instance, the power of emotions on money is toxic.

The influence of emotions on investments

As we have discussed in some of our posts about investing and saving, you need to understand your risk appetite, your future goals as well as the performance of the asset you want to invest your money in. When you are overpowered by an emotion of wanting to gain more with little effort (greedy) , you are likely to invest your money like a gambler. This greediness will make you take the risk that you are not supposed to take or invest more than what you are willing to lose.

The danger associated with investing is that the emotion of gain may lead you to forget about the possibility of losing. Have you ever wondered why few people are very successful investors? Many people invest not because they understand it but because they do not want to be left behind. As a result, they follow speculation to sooth their great emotion of making a lot of money. When the investment fails, they lose a lot of money because they are too deep in it.

The power of emotions in giving

Fortunately for us, emotions are not all bad. Some emotions are beautiful and they can change someone’s life forever. When you give with your heart, you will receive more. Giving has a deep meaning that we often miss. When you give, you are telling yourself that you are able to take care of others. This has a direct consequence of boosting your self-esteem. Most parents find joy in taking care of their children because it gives them a sense of purpose.

In addition, giving is powerful in the sense that it shows that you are willing to lose something. One of the key rules about investment is that, you invest in what you are willing to lose. The bigger the amount you are willing to lose, the bigger the expected gain. This explains why people who invest in low risk assets do not gain more. Additionally, givers will not be afraid of losing because they know that they are gaining either way. It may seem like they are losing today but the gain will eventually comes back to them in another form.

In conclusion, emotions can influence you to achieve great financial success or the opposite. When your emotions are in line with your mind, you can make great decisions. Most people when they look back in their past, it is easier to know that the main culprit was their emotions. Likewise, some are struggling because their previous decisions were influenced by poor emotions. Any kind of emotion that influence you to do things that can cost your financial freedom is bad and you need to be disciplined enough to overcome the power of emotions on money.