Big-‘E’ Number One – Does it Affect Your Finances?

‘Big-E’ Number One – ‘Emotions’

Over the next little while I am going to be writing about the Big-‘E’s (words that start with the letter ‘E’) that will have a major bearing on your financial outcomes in life.

The number of Big-’E’s I have on my list keeps growing the more I think about it. My list originally started out with 5 ‘E-words’ but it is now over 10 and growing!

I am going to start off today with one that is a major stumbling block to millions of people and that is ‘Emotions’.

If you were to draw a line on a piece of paper and write the word Emotional at one end, at the other end you should write the word ‘Logical’.

Making Financial Decisions

Here I am referring to how you make financial decisions. Every choice you make can be measured somewhere on that line.

If all your decisions are driven by emotions then you are open to make many foolish choices because emotions are not logical at all. I’m sure you know that you can love someone for no logical reason. You just love them! The say love is blind because there is no logical reason why you would put up with being treated a certain way over and over again but you do it anyway. We forgive when forgiveness is not deserved; we just forgive anyway.

Now this MAY work in relationships with people but when it comes to our relationship with money it can have disastrous outcomes.

Make financial decisions based on emotions that are not backed up with logic and you are in serious trouble. Saying things like ‘I feel like this is a great investment opportunity’ doesn’t really work unless you have done the calculations and research to justify the emotions behind the feelings.

Know Your Emotions

Now I’m sure you know someone who shows absolutely no e-motions and everything they do is clinical and based on logic (might make a good TV sitcom). They can be pretty dull to hang around with, but they usually make good decisions (if they ever stop analysing and make one). You do need to allow emotions into your life but you need to be very aware of what impact they are having on your financial choices and learn to control the situation.

Interestingly, if you were to draw the line I mentioned above and then try to mark on the line where you sit (between emotional and logical) regarding making financial choices, you would find the mark would be at all different places depending on what decision you are making.

You might make really good logical choices when it comes to buying food but the moment buying clothes is on the agenda you may lose all common sense and self control goes out the window (and so does your money)!

The key is to know what your emotional weaknesses are and then protect yourself from yourself. If you know you have an emotional issue in a certain area, before you get into trouble, put a rule in place. A rule allows you to make a decision without having to engage emotions or logic.

Rules That Can Protect You

A rule like I will never spend more than $50 on a single non-essential item without walking away for 24hrs would be an example.

I can hear a lot of people gasping right now! You have to be joking! What if this item is on sale and it’s the last one left and it’s a bargain! These people are getting all Emotional on me! If you are one of them, you will need to work your way through this. You need to determine what is Emotional and what is Logical and how to make Logical choices rather than Emotional choices.

In 6 months time when you are struggling to pay your car registration, will the NEED to fill the Emotional void 6 months ago stack up to the Emotional pain you are in because you can not pay your registration? I doubt it!

Money Problems?

It is normal for anyone who is in financial difficulty to think they have a money problem. I say that the financial difficulty is evidence that there is a problem but it is NOT a money problem. It will be one of the Big-‘E’s that is the problem. Financial difficulty is the manifestation of perhaps an Emotional problem or one of the other Big-‘E’s I will be writing about over the weeks ahead.

You need to be really clear about this.

If what I have written here is a surprise to you, can I suggest that you record ALL purchases (yes ALL) you make in the next two weeks and classify them as Emotional or Logical and Essential or Discretionary.

Analyse what you have recorded at the end of the two weeks and see what you can learn about yourself.

You definitely need emotions but they do not belong in making your financial decisions.

That’s all for today.

Back again next time with Big-‘E’ number 2.

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CashFlow Clinics are a great way to learn how to take control of your money and make rational rather than emotional choices.

Go to http://simplybudgets.com.au/cfcoaching to find out when I will be near you.

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