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Emotions and Money: The Personal Side of Personal Finance

By Keph Senett

Published July 14, 2023 • 4 Min Read

Money and finances can create strong emotions in many individuals, and these feelings may guide decision-making without people being aware of them. Generally, taking a thoughtful approach to spending instead of an emotional one, leads to better financial decisions.

Read on to learn more about how emotions can impact your relationship with money.

You’re in a relationship with your finances

It’s common to think of money as a simple tool to help you get where you want to be. The problem with that, is it does not take into account the personal side of personal finance.

“Money worries are the greatest source of stress, more than work, personal health and relationships,” according to the Financial Consumer Agency of Canada.

The 2023 Financial Stress Index from FP Canada found that money is still a leading source of stress and “Anxiety, depression, and mental health challenges are the leading negative impacts on the lives of Canadians due to financial stress.”

Everyone has feelings about money. These emotions may stem from childhood or family influences, developing and changing throughout life. It’s a dynamic Prudy Gourguechon, former president of the American Psychoanalytic Association, characterizes as a relationship. As she wrote in Forbes, “Your money … is not a fixed entity, but rather a complex of data points, challenges and opportunities you circle around, interact with and have feelings about. You make decisions about money that impact your financial situation, and these impacts, in turn, reciprocally affect your feelings and future behaviours.”

In other words, finances can trigger emotions, and emotions can affect the decisions you make with your money.

A closer look at emotions around money

Positive emotions around money include feelings of security, freedom, independence, and peace of mind. Understandably, people strive for these feelings, but your financial health is only one part of the equation. Money alone won’t get you there.

Negative money emotions include stress, anxiety, shame, and fear. Your responses to these feelings may worsen your situation. Some people, for example, react to stress and anxiety by avoiding the issue altogether. This could look like refusing to open your bills, not checking your balances or overspending to disguise the problem.

Balancing finances and emotions

Even though it may feel that your emotional well-being depends on your finances, the truth may be a bit more complex. It may be useful to consider your relationship with money to see where you may improve your outlook.

  • Confront family money issues. Everyone has a family history with money; and those stories feed our current narratives. It’s worth taking the time to think about what you were taught about money as a young person and to reassess those beliefs.

  • Identify your fears and think about where they stem from. Work towards a realistic appraisal of your current situation and consider what you might do to improve it.

  • Understand the potential links between stress and behaviours, like avoidance. Try to identify your habits and make an action plan.

The aim is not for perfection but for self-awareness. The more you understand your own emotional landscape regarding your finances, the more prepared you may be to make a plan. Here are a few ways to get started:

  • Look at your bills. If avoidance is your current strategy this could be challenging, but understanding your situation can help you progress.

  • Make a realistic budget. Write down your income and expenses. Categorize expenses into “needs” and “wants” to clarify your spending priorities but don’t cut your wants altogether. You may be likelier to stick to a plan if it includes the occasional treat.

  • Pay yourself, even if it’s only a little. When people get emotional about money, it’s not uncommon to deprioritize their savings. The problem is, as long as you don’t have an emergency fund (or an RRSP, or an RESP for your kids, or whatever other savings goals you have), you may always feel behind. Try putting away a percentage of every paycheque, even if it’s a modest amount.

  • Work with a financial professional. Financial professionals can help you put strategies in place to help ease your mind over time.

If you’re experiencing money worries, you’re not alone. Money worries can affect Canadians from all walks of life. Give yourself the tools to build a positive relationship with money to enjoy the peace of mind that comes with making considered financial decisions for you and your family.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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