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Why Money is Emotional, Not Mathematical and Why You Need to Understand the Difference

The best way to discover medicines that will cure an illness is to approach the problem mathematically.  Scientists take all known parts of the disease and quantify it into numbers and analyze what would happen if  one change were made. Math allows testing on paper first, then for real-world testing, adjusting for what is learned in reality.  Consider the scientists who have applied mathematics to all the life-saving vaccines we now have, or in what they are doing to combat heart disease and diabetes.

And what about space travel… consider the scientists and mathematicians who planned the entire trip in a rocket to the moon and back to earth safely in 1969. A new movie just out called “The Hidden Figures” explains how this trip was possible through the brains, talent, and skill of engineers and mathematicians plotting everything in numbers first that would be needed to make the trip safely in reality. Once they had tested it mathematically on paper, NASA felt it safe to send astronauts into space and return them through a landing in the ocean within a radius of less then 10 miles of the projected landing site. The numbers were what allowed them to know where ships would need to be to pick up the astronauts. The numbers were what allowed men to land on the moon and come home again.

The same trust in numbers can be applied to your finances… when it comes to your income and expenses math will never let you down in terms of telling you the truth about whether the amount of money you have coming in will cover the amount of money you spend.  Numbers are unemotional.  The numbers give us the hard, cold facts about the way we have spent money but that’s where their usefulness ends. Once we see the numbers on paper, we have a choice about what to do with them. They can’t just remain a number that has no emotional baring on what happens to us going forward. We must make a choice about what those numbers mean to us and what we plan to do differently in the future to change those numbers going forward, especially if we are very unsatisfied with what they show to us about our spending and debt.

At Money Mastery we teach that money/spending is emotional, not mathematical. If spending were simply a mathematical problem (i.e. you bring in X amount of money, you spend that amount of money and no more) then overspending would never be a problem. But since spending has so many more factors tied to it than just how much you bring in and how much you expend out, you must have a system for managing it that goes beyond the numbers.  However, it is very important to remember that there is no way to create this system of emotional management without first turning to the numbers for a baseline. They do not lie and you must face them if you want to make good decisions going forward about how your money will be used.

Here’s are some of the ways money is emotional:

  • Many people put off adding up income and expenses just so they don’t have to face the awful truth about how much they overspend.  This is called emotional avoidance and we apply it so many places in our lives, including on our finances.
  • Some people don’t want to face how much they have spent in a particular category, horrified, for example, about finding out through the math that they value fast food more than they value getting out of debt or saving for emergencies. The emotion many people tie to this realization is regret over irresponsibility.
  • Some people like to blame others for their financial trouble. This is called emotional immaturity. Instead of facing the fact that they have no idea what is  happening to their money they blame an employer for not paying them enough, a spouse who spends too much money, or bad health or misfortunes that they couldn’t possibly foreseen on their money problems.

If you are playing any of these emotional games, now is the time to get off this emotional roller coaster and get back to the numbers that will take the emotionality out of money and spending and give you a system you need to stay on top of emotional events that are bound to happen to you.

To do this, I recommend the following:  

  1. Create a 12-month history of how you have spent money.
  2. Put all that spending into categories and total up how much you have spent in each category.
  3. Review what you don’t like about the way you have spent in the past.
  4. Create a spending plan with specific categories that will allow you to spend more in some areas than others based on what you value most but will keep you from going over.
  5. Track your spending (by categories) for 30 days according to that plan, then compare how you spent with the way you planned to spend. Make adjustments as necessary and then try to stick to spending within your plan as closely as you can for the next 30 days.
  6. Create a debt plan so you can see just how much you owe, how long it will take you to pay it off if you don’t apply debt elimination techniques now, and begin tackling the first debt on your list.
  7. Lastly, calculate how much money you will have available to you at about age 68 and prove to yourself whether you will have enough money to take care of yourself in old age or not. NASA could never  have gotten the astronauts to the moon and back if they had not calculated how much rocket fuel was needed to do so. This was an unemotional exercise: Figure out how many miles to the moon and back and how much fuel would be consumed by the craft and determine the amount needed. The same applies to you when it comes to retirement: Determine what retirement means to you, how far away you are from reaching it, and how much money you will be consuming now and into retirement. This will tell you how much you need to have to start building a future that will be fun and exciting rather than scary and debilitating.

You have an opportunity to check your numbers quite easily with the Money Mastery online software.  Take the emotions out of your daily life by easily creating spending, debt, and savings/retirement plans using these tools.  You are only three months away from dramatically changing your financial life for the better. Rather than being scared of the numbers, use them to help you create a base from where you can then fix problems, alter your course, and get to your destination safely and on time.

The First Rule of Finances: Spending is Emotional

This is the first principle of 10 for your review and critique.  As I mentioned in a recent previous post, Financial Principles:  Lighthouses that Will Never Steer You Wrong, I want to expound on 10 financial principles that are absolute and unchanging an that if applied will dramatically change your financial life. “Spending is Emotional” is Principle 1 of the 10 Money Mastery Principles.  

Money Mastery Principle 1:  Spending is Emotional.  This means that money is more about emotions than it is about math. If spending were simply a mathematical problem, more individuals and families would not be consuming more than they should and would be far wealthier than they are. If you do not decide to systematically control your money, you will emotionally consume your future and the opportunities it can offer. Spending money almost always has a powerful emotional impact in our life, whether we realize it or not.

For example, if you just arrived home from a vacation and in your mail found a bill for your auto insurance that you no longer have money to pay, this is an emotional event.  Or how about if you never have surplus money and have to use credit cards so that the balances owed keep growing? This emotional event can put stress on a marriage.

To further illustrate how emotional money can be, take the time to answer the 12 questions that follow. This assessment will help you see how you are (or are not) managing your money, which will be an extremely emotional experience.   Ten points are given for each question, so choose how you are doing on each one for a possible total 120 points.

Once you have taken the assessment, I recommend learning more about how you can get in control of your emotions by learning how to systematically control your spending: contact me for a no-cost consultation, peter@moneymastery.com, or sign up for our low-cost online program that will help you start getting in financial control today: Money Mastery Online Program

FinancialAssessment

The Emotional Cycles of Saving and Investing Money

I want to start this post with Money Mastery Principle 1: Spending is Emotional. 

Certainly it is!  We want things for emotional reasons, so we buy them.  There is an immediate gratification with many of our purchases.  But then later on important needs arise and we don’t have money enough to pay for them.  One minute we’re dealing with wants and our desire to indulge and the next we are dealing with real needs that perhaps cannot be met. Our emotions get whipped back and forth like a tennis ball!

And beyond spending, there are other emotional aspects of finances, including the taxes you must pay. Are you angry when 25 percent, or more, of your income goes to taxes?

What about reaching retirement age with only $58,000?  How emotional is that for 91 percent of the current U.S. population who will only  have that much to show for all their years of work?

What about investing your hard-earned money, only to watch the stock market take a 43 percent dive like it did in 2008?  Any worker with a 401(k) knows the heartache of watching the market cycle go up and down.

I want to take a look at how emotions change as you spend too much or invest money and watch values plummet, then rally, then plummet again.

EmotionalCycle

In this illustration of the emotional cycle of finances, notice how a person starts with optimism, and then proceeds through all the various emotions, only to end with optimism again.  This cycle is clear and undeniable in every aspect of personal financial management.  After you experience a few of these cycles, you lose confidence in yourself and can become cynical.  When this happens, there is often the temptation to give up and stop even watching after money affairs.  In my experience, this cycle is found in how you spend money, incur debts, handle taxes, and why you may fall short in providing an attractive retirement income.

The way to deal with the emotions of money and finally get control is to have a system for forecasting income and expenses and then track spending to see how it compares with your actual plan. A system will help eliminate the emotional swings we all go through in dealing with finances.  When you are in control of spending, debt, taxes and retirement, you will then be ready to become an actual investor (this is not to be confused with people contributing money to a 401(k) — these people are not real investors), one who can become very good at knowing where to put money in motion in order to create more, when to invest and not invest, and one who has the cash flow and resources such that they can afford to lose money in case those investments don’t pay off.

If you do not have a “system” of controlling spending, eliminating debt, reducing taxes, or maximizing retirement income (and doing those four things at the same time), your success with money is unlikely.  Your entire financial future depends on you learning to forecast, track, and consistently compare the way you spend, borrow, pay taxes, and prepare for retirement. These are emotional, not mathematical issues. It does not matter how much you make or don’t make, it doesn’t matter what money seems to be there or not, if you don’t have a system for controlling your emotions, the numbers don’t mean much.

The only system that teaches how to manage your emotions surrounding money is the Money Mastery program. It does not waste your time on creating a silly budget that you will not be able to stick to. It will not waste your time with credit repair before you even learn how to get out of debt. This program doesn’t waste your time with suggesting you cut up all your credit cards or squirrel money away in a measly 401(k). This program doesn’t waste your time with false hope. This program is based on time-proven principles and predictable formulas that when applied are guaranteed to help you get out of all debt (including your mortgage) in under 10 years, make spending enjoyable again, and help you predict when you can retire with an income you cannot outlive. And best of all, it can teach you how to do all this without any additional money out of your pocket. True wealth can be created on ANY income. It just requires a bone fide system that brings actual results.  Go to www.moneymastery.com to learn more.

And all the best to you, you emotional animal!

An Emotional Story of Rags to Riches and Back to Rags

Luther Ellis was a talented football player from the University of Utah.  He was first-round draft choice in 2000 and player for the Detroit Lions.  He made $11.6 million from 2000 to 2004.  According to his report in the Salt Lake Tribune on January 22, 2010, he said he had filed Chapter 7 bankruptcy.  Luther listed $1,380,000 of assets and $4,400,000 of liabilities – including $37,500 in delinquent state and local taxes.

Luther said that although the Detroit Lions did a good job putting on financial programs, teaching savings, investing, and giving statistics on how many of the football professionals would be dead broke in three years, he didn’t listen. Instead he said to himself, “That won’t be me!”

Sports Illustrated was referred to in the Salt Lake Tribune article on its studies showing 78 percent of all former NFL players either filed bankruptcy or experienced financial stress due to joblessness or divorce.

So what happened to Luther Ellis?  Here is his answer: “I made bad choices… the bankruptcy wasn’t anything to do with drugs, gambling, alcohol, women or anything else.”  Fortunately the NFL 10092organization had set up a pension and qualified deferred compensation plans to retain over $500,000 for Luther that creditors could not touch.

My point in referring to Ellis is that this kind of experience does happen to a lot of people, even people who seemingly make enough money that it shouldn’t happen to them.  I am not saying that financial instability has the possibility of happening to you, I’m saying it does happen to you. In my 35 years of experience, we all go through financial cycles in our lives, the highs and the lows.  When we are making good money, we can’t imagine that it will ever end.  When things are tight, and we have to watch every dollar, we manage and say to ourselves, “when things get better I will never forget how bad it is to be so broke.”  But when things get better, we forget and don’t watch after little things as much and we did when things were tight. It goes in cycles, as I said.

So how can  you level out these financial highs and lows? The best way, as I have said lots of times before, is not to assume that making more money will even things out (look how well that worked for Ellis). The best thing to do, no matter how much money you make, is to create a spending plan. A written plan lets you refer back to it and review it often so you can stay on track. A written plan lets you forecast your income and expenses and helps you make sure you are balanced so that you don’t spend more money than you make.  

In the beginning, when you are just starting out with a spending plan, you will need to create one, live with it and track it for 90 ControlSpending1days and then come back to it and tweak it after you see how well it is, or is not working. Then, when you grow accustomed to spending and saving based on a written plan you can go to an annual review of the plan. But remember, you will track this plan every day of every week of every month of the year. A plan without daily tracking and comparing is no plan at all. Make sure you compare what you had planned to do with your spending each week with what you actually did.  If you have a spouse, then meet together weekly and review the planned income and expenses and make notes on how you will do better the next week, and the next month. Practice instant forgiveness with your spouse if they don’t follow the plan perfectly. Remember, you will be the one who needs the instant forgiveness the next time, so don’t hold on to anger about mistakes. This is a recipe for disaster. A plan lets you make mistakes because you can see how to correct them and this makes it easier for you to give that instant forgiveness.  

To set up a spending plan go to moneymastery.com.

As you track and compare your spending for many months you will see your financial personality show up.  It is like looking into a financial mirror and seeing yourself for what you really are.  If you avoid this process, you will make decisions that will keep you in debt and in trouble for many years.

If Luther Ellis would have formed good personal money managing habits while he had little money in college, he could have avoided filing bankruptcy later when he made more than enough money that he shouldn’t have had to.  Don’t think that just because you only make $50,000 a year that Luther’s example doesn’t apply to you.  Don’t think that if you made $11.6 million this wouldn’t have happened to you.

It matters not how much you make, only how well you handle the emotions surrounding your money that counts.

Postal workers making a modest $35,000 a year have retired as millionaires because they learned how to manage their emotions so they could manage their money. Doctors and professional athletes have died broke because they thought that money should solve everything. I am telling you this experience has nothing to do with money — it has everything to do with your emotions.

We are all emotional animals, and this is a good thing.  So to be successful with your money, you must learn the psychology of managing money.  This means emotional training for emotional decision-making.  This is not about math, or accounting, banking or finance.  It is all about emotions.  I promise you, if you will learn to manage your emotions, you will have little, or no financial trouble.

For more information on how to handle emotions, set up a spending plan, and learn how to save money all while eliminating debt, call me: (801) 292-1099, ext. 2.

What to Do about Your Parents’ “Stuff” When they Die

Just last week I was listening to an estate planning attorney, Lee S. McCullough, III, tell of his discovery of the best system to divide up possessions after both parents have passed away.  Considering he has had tons of experience with hundreds of family settlements, I took very good notes.

McCullough has observed over the years how dividing up stuff after the death of a parent is emotional…very emotional. Hearts are saddened.  Time is short and there are many things to do. Surviving children must plan the funeral, prepare the obituary, take care of the parents’ house, be sure items that have been given by parents to surviving family members via wills/trusts have been  distributed, and so forth.

But what about all the other items in a household that have not been 8268bequeathed to anyone in particular but will still need to be divided up, such as kitchen appliances, furniture, dishes, etc.? To bring order to all this chaos, McCullough suggests holding a “family auction” where items that have not already been bequeathed can be bid on using fake money.

Here are his suggestions for holding the family auction:

  1. Establish ground rules.  Print them and have everyone review them in advance of holding an auction.
  2. Make a comprehensive list of all assets to be auctioned off.  Be sure each surviving child, or grandchild, reviews this list and knows what they really want the most.  Prioritize assets.
  3. Children only. Only have the children (or grandchildren as appropriate) of the deceased parents attend the auction.  No spouses are permitted.  This is very important.
  4. Distribute fake money.  Give out $20,000 of fake money to spend during the bidding process.  Every person gets an equal chance to bid for what they want.  When the $20,000 is spent but8259 more assets are available, only then consider distributing another $10,000 to each participant.  Everyone gets the same amount of fake money.

McCullough stresses that because surviving children will never have equal incomes and equal cash assets, the fake money auction is the best way to go in order to avoid hurt feelings among siblings.  Some families decide to hold an actual real-money auction where siblings bid against the “real evaluation” of the assets.  For example, there may be a baby-grand piano, which may have a value set at $5,000.  A cash-rich child can dominate the auction trying to buy the piano and create hurt feelings among other siblings.   Fake money levels the playing field.

McCullough has watched this play out over and over again.  He said that children learn very quickly how to prioritize the fake $20,000 so they can get what they want.  Also, he said there has not been the usual remorse after an auction is over, because if one of the surviving children really wanted something, they could have raised their bid amount and spent more of their $20,000 to get it.

We all know that money is emotional.  We all hear about how families get torn apart trying to divide up their parents’ stuff after a funeral.  By using fake money, holding  an auction, and keeping spouses out of the picture, you can keep your family members grounded emotionally and help set the tone for family harmony at a time when hearts are tender.

What Are Emotional Savings?

If you think that you need to save only for retirement and emergencies, you need to think again. The need for a third savings category in your Spending Plan is vital if you are going to stay on top of spending and get out of debt. This third category is called “Emotional Savings” and it can do wonders for your finances as well as your general sense of happiness.

What are Emotional Savings?

It goes without saying that we will often spend money for purely emotional reasons. This, in and of itself, is not a bad thing. It is simply something we should plan for, especially in today’s product-oriented society where we are often enticed to make impulse purchases. People spend money whether they have it or not so saving money for this emotional spending just makes sense. It takes into consideration that there are many times we need to spend for reasons that go beyond daily survival and preparing for the future.  Simply saving for retirement will not be enough when an emotional event occurs right now. You must put aside even more money in an “emotional savings account” so that you will be prepared when these events arise, because they are sure to happen!

Think on this:  You can have anything you want, you just can’t have everythshutterstock_111534983 (644x800)ing you want, so that means you must prioritize your spending so that you can fulfill your emotional needs without jeopardizing your future or derailing your efforts to get out of debt. The way to do this is to prepare a Spending Plan, track your spending according to that plan, and then see where you have been wasting money. You can take this wasted money and create the three spending categories, 1) Emergency Savings, 2) Long-term (or retirement) Savings , and 3) Emotional Savings.

You might be thinking, “but what if I don’t have much I can put away for emotional savings?” That’s okay, the Money Mastery program likes to recommend finding even just a little bit you can save, say 1 percent of your gross monthly income (which we guarantee you WILL find if you make a Spending Plan and track the plan).

Okay, so what are some of the emotional needs for which you should be saving? Typically these could include such things as:

  • New recreational vehicles
  • Clothing for special ocassions
  • Novelty decor for your home
  • New music or collecting more books for your library
  • Treating family members to a surprise gift or getaway
  • Spa retreats

Whatever the money is used for, it is important that it be spent on something fun and not for routine, daily sustenance. If you are married, emotional money should be spent on you and/or your family and not someone outside your household.

Wouldn’t it be wonderful if you could meet your emotional needs when you just want to buy that new CD or you see a handbag that you would love to get that goes with a pair of shoes you’ve had in your closet forever? What about not having to feel guilty when you want to buy more flowers to plant in your garden in the spring time or when you want to treat your husband to a golf trip with his buddies? Wouldn’t it make you feel sensational to spend money for these wants when you’ve actually put money aside expressly for this purpose?

Preparing for the need to spend money for purely emotional reasons eliminates the following negative habits:

  • Reckless spending of money that has been set aside for daily survival.
  • Frittering away your long-term savings needed for retirement.
  • Staying in debt much longer than is needed because you are spending impulsively.

Emotional savings brings wonderful psychological rewards into your life and the lives of your family members, especially for those who don’t overspend but constantly deprive themselves and their family members of those things that would help build lasting family memories and close emotional ties to loved ones. Emotional Savings can be a lifesaver! It gives people exhausted by the daily struggle for survival a legitimized excuse to play, relax, and enjoy themselves a little when they would not otherwise feel justified in doing so.

The only time it is not appropriate to spend money for emotional wants is when you have not allocated funds expressly for that purpose within a well balanced Spending Plan where those funds have been planned out to be used for such spending. If you have this money accounted for in your Spending Plan and are putting it in savings each month (regardless of how small that amount may be), it is totally acceptable to spend this money for the sheer purpose of providing pleasure to you and your loved ones. Doing so will give you a sense of peace and satisfaction and eliminate the guilty feelings that come from spending money on emotional impulse when you have not planned adequately to do so.

Contact us at Money Mastery for more information about Spending Plans and creating savings categories within that plan.

Emotional Spending: The Real Problem

The problem today is that many people live paycheck-to-paycheck and never seem to get in control of their money.  For example when you get a pay raise what do you do with it?  From my experience, I have found most people don’t know where the extra money goes, spending it before they have a chance to really account for it through a spending plan. Usually it isn’t long before they’re right back living paycheck to paycheck. Why is that?

You remember when you were in college living on very little money, but always managing to make ends meet.  I’m sure you’ve had this thought, “I seemed happy enough back then, and now today I’m making five times as much money but I can’t get ahead! Go figure?”  What happens along the way to make this happen? Emotional spending, that’s what!

Emotional spending is what happens when we think money is more about math than about how we feel about money and how we spend it. Without a plan to control emotions and deal with impulse purchases, it will not matter how much money you make, you will always be behind!

Consider this U.S. Census statistic for people retiring at age 65 today in America: They have less than $60,000 of total assets, including equity in their home and that equity is worth only about $13,800. These older Americans did not plan to fail, they just failed to plan and thus have nothing to show for all their hard work. They ate up all their income in emotional spending because they didn’t have a plan. And what about broken marriages destroyed over emotional spending? Marriage counselors report that 89 percent of all marriages are on the rocks because of disagreement over money. With a proper spending system divorce related to finances simply does not happen. I have 25 years of coaching experience with thousands of couples to back that up.

 

Now dare to dream with me…  How would you like to never argue about money again? How would 1142you like to know that each month the biggest financial worry you have is deciding what you will do with surplus money you have to invest, save, or spend? A happy marriage, secure future and predictable retirement are all within your grasp without any additional money than what you are making right now if you will build a spending plan (not a budget) and live that plan!

 

Spending is so emotional.  Until you control your emotions (and this is impossible to do without a specific plan of action that holds you accountable) you will never have any surplus money. Can you imagine what it would be like to have surplus money at the end of each month?   Can you imagine what it would be like to have open and honest discussions with your spouse?  Further, imagine what it would be like to predict precisely when you will be out of debt and enjoy a quality retirement income?  When you bring this financial predictability into your life, then comes peace of mind, stability and happiness to your family.  Your next task?  Create a spending plan. Click here for more information on how to do this.

 

Wants Versus Needs: More about the Emotions of Spending

Donald Horban taught this amazing simple concept:

“We don’t need to increase our goods nearly as much as we need to scale down our wants.  Not wanting something is as good as possessing it.”

 

We must learn to prioritize and scale down our wants so we can get off the financial treadmill.  As long as our wants take over our emotional reasoning, we will never get all we want and thus never be satisfied.  We will die wishing we had done or acquired just one more thing.  Expectation is an enemy to all of us!

I would like to take a look back at the “good ol’ days” when we had fun playing kick-the-can.  We sat on our porch and visited with our neighbors.  We had a party-line with three other families using the same phone line.  Going back in time the TV networks quit at 10 in the evening — no TV shows after that.  And we did not have the ability to record and play-back any of the three channels.

I remember walking everywhere, then got a bicycle when I was 12  and this was anshutterstock_196278281 amazing step up in transportation.  At that time, homes could be purchased for $12,000 and everyone knew everybody.  I did not dare do something wrong or one of my six aunts would be there on my tail faster than my mother. I went to school with kids who came barefoot because they had outgrown their shoes and their parents were saving up the cash to buy new ones — until then, they just went without. Vacations were defined as camping with sleeping bags in the back yard. Fishing was catching carp, or trash fish, in pools of water after the spring run-off. The most likely meat I ever ate was venison.  My dad and three older brothers usually hunted four to eight deer every winter to cut up and place in our freezer. This meat would last us a whole year, plus we gave many wrapped pieces to widows in our neighborhood.

Now we have a lot more choice — several more options for food, clothing, shelter and transportation. We have cell phones, the internet, and cable TV with recording options. Children don’t go without shoes if they outgrow them — their parents simply buy new ones on a credit card if they have no cash to pay for them up front. Cars are faster, we have more options to get around, socialize, play, and learn. So why aren’t we any hapshutterstock_185033393pier today?

Most children growing up in the U.S. today will never have the opportunity to be connected with their food source, including the experience of milking a cow. They will not wash dishes with their own hands. We have become automated and accelerated to the point that we want more, have more, and have the time to make more happen. But this only increases our desire for more, making it more difficult to distinguish between wants and needs.

Time to scale down wants. With all the time, resources, and products we have we are not any happier (and perhaps less happy) than people were 50 years ago. To have more financial security, peace, and happiness you must learn to be happy with what you have (and you must teach your children to do the same). If we are never satisfied, surely our children will learn this from us.  Every day you part with your money is another day you have to work, not only for your own insatiable wants but for the wants you have planted in your children as well.

How can you scale down? Start out by spending only one-fourth of what you have been spending each month for the next six months, then up that to half of your spending for the remainder of the year. In addition, be sure to create a spending plan (like the one I mentioned in my last blog on Emotional Spending) with categories and include a category for paying yourself (or savings).  Even if you have debt and other problems looming, we have found that almost all of our clients can find at least 1% of their gross monthly income they can put in savings. After you have saved this for a few months, work up to 2, then 3 and finally shoot for saving 10% of your income every month.

Example:  Income of $50,000 a year equates to about $4,100 a month; 1% of thatOnePercent $4,100 would mean you would save $41 each month.  I know virtually anybody can save 1% of their income each and every month.  If you can not do this, then at least try not to over spend your income.  This means you have to be in balance, which also means you must have a spending plan so you can see that you are in balance. In other words, try improving a little bit over time.  Track you progress to make sure you are making improvements.

Finally, please give yourself peace of mind by doing the following:

  • Set a date each week to review all finances either with yourself or partner.
  • Make a list of where you want to be in 1, 2 and 5 years.
  • Implement plans each week and watch yourself grow!


Emotional Reasoning Hurts All Financial Decision-making

Principle 1 of the 10 Money Mastery Principles states: SPENDING IS EMOTIONAL.  We all know this to be true, because we are emotional animals.  Life is far more fun when we are having grand emotional experiences like seeing a newborn baby, watching a sunset, eating a delicious new desert, or skydiving.  Our emotions are exciting  but they can also prove to be challenging, especially when it comes to money.  How hard was it for you the last time you had to explain to your spouse why you spent more than you had for something silly? Or how emotional did you get the last time you had to make an investing decision?

Consider what financial guru, Keith Fitz-Gerald, discovered from three university studies on the emotionality of money (taken from  Total Wealth,  May 14, 2015):

“Researchers at three major universities — Stanford, Carnegie Mellon and the University of Iowa — published findings showing that brain-damaged individuals made better investment decisions than the rest of us.

To be precise, what they studied was the impact of injuries that prevented the brains of the injured from processing emotional stimuli and, by implication, responses to those specific inputs. 

Researchers found that when they compared the findings to folks with no brain damage, the ‘injured’ individuals made significantly better investment decisions.

That’s because the human brain is wired to evaluate economic and investing information using connections and pathways that are closely linked to emotional inputs. You’d think this kind of decision-making would involve logical brain pathways but that’s not true.

This is why making decisions with your money can be very challenging, especially when the markets are complicated and the investing landscape emotionally charged like it is right now. Because you are taking what should be a logical decision and using emotional receptors to make it.

As co-author of the Money Mastery principles who has coached thousands of people on how to manage their own money with confidence and efficiency, I can tell you from experience that you should do everything you can NOT to use these “emotional receptors” when making financial decisions.

How can you avoid using these receptors?

  1. Build a spending plan.  Go back 12 months and examine theSavings Plan way you spent money over the last year.  See what “categories of spending” show up and then total the amount you spent in each category. See if anything surprises you.  Did you spend more money that you took in?  Did you spend far more money on eating out and fast food than you actually thought you did? Did you buy more clothes and spend more money on entertainment than you imagined? Yes… well let’s blame it on those pesky receptors.  If you will build a 12-month historical spending plan, then from that historical picture determine your values and priorities for spending going forward, you will be able to make spending decisions while you are in a fairly unemotional state. This will give you a better chance at eliminating those receptors at the point of purchase. A plan helps you use more of your logical brain when making financial decisions.
  2. Place your spending categories in a tracking system such as a phone APP, electronic device or on paper. This will allow you to easily record, at the point of purchase, every expenditure you make in each spending category and most importantly, see what you have left to spend in that category for the month, thus avoiding over-spending.  By looking at what you have to spend in monthly segments you can cut off emotions and see the effect your spending will have on other areas of spending and on your financial picture overall.

What about debt? How did you get into the debt in the first place?  Restore CreditWell, the answer is those pesky receptors.  The solution is to create a spending plan and track the plan. As you do, you will create a surplus that can be used to accelerate debt payoff. As long as you have surplus each month, you are not going deeper into debt and you can use the surplus to pay down debts much quicker.

What about retirement planning?  Most people take more time and effort planning their yearly vacation than they do their entire retirement future.  How can you hope to be successful if you never plan?  I know why many people don’t like to plan for retirement, they don’t know where to start, how to prepare the numbers, and haven’t saved anywhere near enough, so they avoid this subject all together. However, when I help them take the emotion out of this by teaching them how to build their own retirement plan (which is based on things they absolutely control right now such as spending and debt) they get excited about all the possibility their future holds.

All of us can eliminate the emotions that undermine financial decisions by doing everything the Money Mastery way, or we can get in an accident and have head injury. Both will help take the emotional drama out of money — you decide which route you’d like to take.