Having control over your day-to-day finances

Money can be a highly personal and emotional topic, and this is completely understandable. After all, finances can encompass everything from concerns about monthly expenses, rent, or mortgages to ensuring there are sufficient funds saved for a child's education, future retirement, or a memorable family holiday. Many of these topics are not only sensitive but also stressors that can affect how to control your spending habits as a whole.  

Rather than resisting the connection between personal finances and the emotions, it’s important to embrace and explore their relationship. In this article, we’ll take a closer look at how money and emotions work together, for better or for worse, as well as how to effectively manage day-to-day finances in the midst of stress or turmoil. 

The Connection Between Money and Emotions 

The link between finances and emotions is strong and valid. Nobel Prize-winning psychologist Daniel Kahneman conducted a study demonstrating that 90% of financial decisions are driven by emotion, while only 10% are based on logic.1 

Negative emotions can affect our financial decisions, leading us to spend more, make poor investment choices, or take excessive risks. These decisions can create financial gaps with a powerful impact on our mental and emotional health, often resulting in stress, anxiety, frustration, shame, low self-esteem, and depression. This can create a perpetual cycle of negative emotion and financial hardship that can be difficult to escape.  

If emotions have the potential to push us toward poor financial choices, should we focus on removing emotions from the financial decision-making process? Not necessarily. 

Relying solely on logic to make decisions is not a sound strategy. Research shows that individuals with damage to the brain regions that combine emotion and reasoning can still think clearly, yet they often make poor choices.2 This evidence indicates that emotions are an essential part of the decision-making process, especially when it comes to finances. 

Thoughts of money don’t always have to be associated with negative emotions. In fact, contemplating your finances can also bring positive feelings of security, comfort, and freedom. By making small changes to financial habits, a financial journey can be an empowering and uplifting experience. 

Applying Emotion-Based Strategies to Your Finances 

Rather than trying to remove them from the decision-making process, emotions can be used as powerful tools to help take control of your finances.  

The next time you need to make a financial decision of any size, consider this balanced approach to make the best choice in light of your goals and financial situation without ignoring emotions in the process. 

  1. Acknowledge: Take a moment to pause and recognize the emotions you are experiencing. 

  2. Identify: Consider what is causing those emotions to arise. 

  3. Analyze: Reflect on how emotions are impacting the decision-making process. 

  4. Consider: Put emotions into perspective and explore the long-term implications of how financial decisions might affect your life and future. 

  5. Separate: Analyze the facts and separate them from emotional reactions. 

  6. Rationalize: Utilize both facts and the emotions to make a rational decision and take action. 

Take an example: it’s the end of the month and you’ve just opened up your credit card statement to find it’s a little bit higher than you expected. Ask yourself how that makes you feel in that moment. Maybe you’re confused because you don’t remember spending that money, or maybe you’re angry because you see your partner spent $200 on a new pair of shoes you didn’t know about. Maybe you’re frustrated because you feel like you’re paying off as much as you can and your bill keeps going up.  

Acting on those initial emotions might look like panicking and making a big payment that will throw off your budget for the next month, or putting a freeze on your partner’s card. Applying an emotions-based strategy like the one above might look more like reviewing the statement, and identifying areas where you can cut back on spending, or marginally increasing your monthly payments, or both. Taking stock of your emotions before reacting can help prevent you from making a spur-of-the-moment decision that doesn’t actually address the underlying causes or issues you’re dealing with.   

Taking control of your money does not mean that you need to stifle or ignore certain emotions. Instead, you can use them as a guide to help you navigate a balance between pure logic and pure emotional decision making. Emotional needs can also help direct you toward financial decisions as a whole, such as wanting to provide for your family, plan for retirement, or save for unplanned expenses. All of these have both emotional and logical implications that are worth exploring.  

Many of our long-term financial goals are driven by emotion. Purchasing a home with a big enough yard for the kids to run around in, your dream wedding, traveling the world with your loved ones – our goals are incredibly powerful sources of inspiration and motivation to stick to financial targets. 

Strategies to Alleviate Financial Anxiety 

Try to minimize financial anxiety when it comes to getting control of your finances and improving your decision making. To do this, you can make small changes to your financial behaviors and how you control your spending habits. Here are some tips to get you started: 

  • Automate your savings account contributions. 

  • Create a household budget to track your spending and save on food, utilities, and home improvements. 

  • Pay down debt a little at a time to reduce overall losses, starting with your highest interest debts (normally credit cards). 

  • Start budgeting for an emergency fund. 

  • Celebrate small success like brewing coffee at home or cancelling that subscription you no longer use by treating yourself to something nice with some of that extra cash at the end of the month (after you put some in your savings). 

  • Use the library to borrow books, music, or movies.  

  • Take public transportation, walk or carpool when possible. 

Small financial successes can provide an emotional boost by building self-confidence and motivation. Starting out small can also help create a sense of optimism that larger financial triumphs can be achieved. These wins can be what help individuals escape the cycle created by negative emotions and financial stress. 

Take Control of Your Emotions and Your Money 

When managed correctly, emotions can be an incredibly powerful financial tool. More importantly, finances don’t have to only cause negative emotions. Instead, you can empower yourself when it comes to taking control of your finances by recognizing the impact money can have on your emotions. While you make positive changes to your attitudes and behaviors, you can also reduce stress and emotional strain along the way. 

1How Emotions Can Influence Your Financial Decisions,” City National Bank.

2The Science Behind Money and Emotion,” Vanguard Investments

This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions. 

SMRU #5451851.1 exp. 02/10/25 

Disclosure

Ralph Gruendling is an agent licensed to sell insurance through New York Life Insurance Company and may be licensed with various other independent unaffiliated insurance companies in the states of FL, GA, MD, NC, SC, TN, TX, and VA. No insurance business may be conducted outside the states referenced.

Ralph Gruendling is a Registered Representative of and offers securities products & services through NYLIFE Securities LLC, Member FINRA/SIPC, a licensed insurance agency, and a wholly-owned subsidiary of New York Life Insurance Company, 821 N Main St Ste 13, Anderson, SC, 29621, 864-221-3NYL. In this regard, this communication is strictly intended for individuals residing in the states of FL, GA, NC, SC, TN, and TX. No offers may be made or accepted from any resident outside the specific states referenced.

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Neither RALPH C. GRUENDLING & ASSOCIATES nor its associates are in the business of offering tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.