Money makes the world go round. Apart from allowing us to buy the things we need (and want), money influences our thoughts and behaviors in ways we don’t realize – regardless of financial status. This is what experts call the psychology of money.
And yes, this is the very reason why we need to understand the emotional and psychological effects of money.
If you’re clueless about this, worry not, for we’ll explore this concept in detail. Better yet, we’ll give you tips on improving your relationship with money – and help you overcome the financial anxieties and stresses of it all.
Without further ado, let’s get this (money) ball rolling!
Emotions and Psychology of Money
Psychology of Money and Our Emotions
Money and emotions are deeply interconnected. Your finances can trigger certain feelings, just as your emotions dictate how you spend money.
For one, not having enough money in the bank can make you fearful. You can’t help but think: What if you run out of money? What will happen to your family?
This emotion, of course, may prod you to try to earn more money.
Expectedly, money can also bring about feelings of shame. Whether you spend a lot – or not have a lot, this distress may cause you to do the opposite.
Then there’s guilt. This is common with people who have extra money – or earn it easily. They often feel like they’re not being generous, so to clear their conscience, they give more than they usually do.
And while money is known to trigger a bevy of negative emotions, they lead to positive emotions just as well.
“Existing research tends to show that money leads to happiness,” explains author Sarah Asebedo of Texas Tech University.
I mean, who doesn’t like earning money or getting your paycheck at the end of the day?
This finding is just the tip of the iceberg, though. Her research has shown that these positive emotions can help you build wealth as well.
She explains:
“Positive emotions actually support and create the behaviors necessary for people to succeed in their financial life [for example, earn money, exercise control, stay out of debt, save, and so on].”
Simply put, “Positive emotions also have a causal relationship with wealth creation.”
Psychology of Money and Self-Esteem
Just as money is related to emotions, research shows that it’s tied down to one’s self-esteem.
Sure, financial wealth can boost your confidence, pride, and determination. According to the American Psychological Association, it can also make you fearless.
And why not? You have money to burn!
That said, a study has also shown that “basing self-esteem on financial success predicted making more financially-based social comparisons with others, feeling less autonomy and control over one’s life, and experiencing more financial hassles, stress, and anxiety.”
So even with tremendous wealth, your self-esteem is not immune from taking a low blow.
Psychology of Money and Relationships
Although Jennifer Lopez was quick to say that her ‘love doesn’t cost a thing,’ it’s not the case for most couples. In fact, a report has shown that it’s something that causes most arguments. Surveys also show that it’s the third-leading cause of divorce, right behind incompatibility and infidelity.
And while money has wrecked many relationships, it’s the same thing that makes some single people more desirable.
“Daters who get better with their money will naturally attract better dating prospects because it is still one of the primary attractors in our society,” explains dating coach Dana Hoffman,
She noticed this pattern rise during the Covid-19 pandemic – as many felt financially insecure due to unemployment.
So whether you lack money – or have tons of it – it’s sure to affect your relationship – for better or worse.
Overcoming Financial Anxiety
Contrary to popular belief, financial anxiety is more than just worrying over the money you have in the bank. It’s also about “obsessing over your finances and how everything in your life impacts it,” explains financial planner Corbin Blackwell.
Common Causes of Financial Anxiety
A lot of things can trigger financial anxiety. According to Blackwell, they can range from financial illiteracy, a wrong money move, to impending unemployment.
And even if you often make prudent financial decisions, you can still feel anxious – especially with the crazy inflation rates we’re all experiencing.
Strategies for Managing Financial Anxiety
Your finances can surely keep you up at night – but there’s always something you can do to ease all your worries away.
In fact, here are three effective strategies you ought to try out:
Mindfulness and Self-Reflection
Mindfulness is about being aware of your thoughts, feelings, and environment. It also deals with acceptance, i.e., not judging what you’re thinking/feeling right now.
Self-reflection, on the other hand, is all about ‘turning inward.’ It’s a matter of minding your thoughts and behaviors and the factors that lead to such.
Research shows that both are useful in curbing anxiety, even the money-related kind.
One study has concluded that mindfulness is moderately effective in improving anxiety and mood. Another has touted self-reflection as a critical part of anxiety treatment, as it can pave the way for behavior change and better self-awareness.
Developing a Budget and Financial Plan
A budget plan shows your daily money flow, while a financial plan indicates your present finances and your short/long-term money goals.
Both are useful for managing financial anxiety as they help track your expenses. When you know where your money is going, you can get a better hold of your spending.
(Read more on financial planning for investing – how much should you save and when should you start?)
Seeking Professional Help
Like going to a therapist for your anxiety, you can always seek help for your mounting money woes. Better yet, you can get it for free. Just make sure to refer to this Forbes article on “Where to find free financial advice.”
Developing a Healthy Money Mindset
While money can trigger negative emotions, self-esteem issues, relationship problems, and anxiety – you needn’t be wary of it.
See, it’s all about developing a healthy relationship with money. And to achieve this, you need to understand your money mindset.
There are four money mindsets, namely:
- In-debt. You borrow and spend money in a vicious, never-ending cycle.
- Break-even. You pay all the bills and spend the money you have left without going into debt.
- Comfortable. You desire to be financially secure, so you always save your money, pay your debt (or avoid it all costs), and live thriftily.
- Rich. You’re financially successful because you’ve mastered the art of making money. And, despite your wealth, you still live modestly. Perhaps the best example is Warren Buffett, who still lives in the house he purchased in 1958.
How to Develop a Healthy Relationship with Money
Identifying your money mindset is the first step toward developing a healthy relationship with money. Once you’ve determined yours, you will find it easier to follow these three essential tips:
Prioritize Financial Goals
If you want your financial dreams to come true, you should focus on them. And to do this, you need to list them all and rank them according to priority.
(Here are 9 habits you can start in order to have a financially secure future)
Practice Gratitude
Giving thanks does more than just relieve stress or make you happy/optimistic. According to a report, it can also help you build your wealth.
Studies show that gratitude makes you more patient, thus giving you a more “forward-focused outlook” on finances.
Achieve the Balance between Saving and Spending
Experts recommend different ways of balancing saving and spending. Some campaign for the 50/15/5 rule – which is:
- Allotting no more than 50% of your pay to essential expenses/purchases
- Saving 15% of your pretax income for retirement savings
- Channeling 5% of your take-home pay towards short-term savings/unplanned expenses
Some go for the 50/30/20 rule, which is:
- Spending 50% of your pre-tax pay on the essentials
- Spending 30% on whatever you want
- Funneling 20% of your money towards savings and/or debt repayment
At the end of the day, it’s choosing the budgeting rule that makes you feel most comfortable.
Reducing Financial Stress
Financial stress is just what its name implies – it pertains to all your money worries. And, just like the traditional stresses in life, it can take a toll on your emotional and physical health.
This is often caused by:
- Debt payments
- Lack of retirement money
- Lack of emergency money
- The desire for a ‘better’ life
- Educational payments
- Lack of stable income
- Mortgage/rent
Techniques for Reducing Financial Stress
Financial stress may be all-consuming, but the following techniques can help you combat it:
Participate in Stress-Relieving Activities
As mentioned, financial stress can affect your health. If left unchecked, it can lead to depression and obesity, among many other issues.
To prevent this from happening, make sure to participate in stress-relieving activities. Great examples to try include exercise, meditation, yoga, and journaling, to name a few.
Seek Professional Help
As I’ve mentioned above, professionals can help you with money issues. They can assist you with daunting activities, such as managing debt, sticking to a budget, etc.
Create a Support System
Don’t be ashamed to reach out to family, friends, or professionals. Sometimes, all you need to do is unload your burden on someone eager to listen.
And, should they offer assistance, then good for you!
Conclusion
Money has a significant impact on your thoughts and behaviors. They can affect your emotions, self-esteem, and relationships as well.
Likewise, finances can cause anxiety – and undue stress.
The good news is you can address this by developing a healthy relationship with money. It’s just a matter of being mindful, sticking to your plans, and seeking financial help/support whenever you need it!
Remember: your money issues all boil down to how you approach money. That’s why you need to follow the tips above – for they’ll help you get through the anxiety and stresses of it all!
References
- Elsborg M, Bruun A, Jensen RH. Supporting anxiety patients’ self-reflection through visualization of physiological data. 32nd Australian Conference on Human-Computer Interaction. December 2020:742-747. doi:10.1145/3441000.3441037
- Gambini B. Downside to tying self-worth to money. University at Buffalo Research and Economic Development. https://www.buffalo.edu/research/about-us/researcher-spotlight.host.html/content/shared/university/news/ub-reporter-articles/stories/2017/05/park-self-worth-money.detail.html. Published May 2, 2017. Accessed February 3, 2023.
- Gourguechon P. The psychology of money: What you need to know to have a (relatively) Fearless Financial Life. Forbes. https://www.forbes.com/sites/prudygourguechon/2019/02/25/the-psychology-of-money-what-you-need-to-know-to-have-a-relatively-fearless-financial-life/?sh=7ac28f03dfe8. Published October 12, 2022. Accessed February 3, 2023.
- Gregoire C. How money changes the way you think and feel. Greater Good. https://greatergood.berkeley.edu/article/item/how_money_changes_the_way_you_think_and_feel. Published February 8, 2018. Accessed February 3, 2023.
- Hofmann SG, Sawyer AT, Witt AA, Oh D. The effect of mindfulness-based therapy on anxiety and depression: A meta-analytic review. Journal of Consulting and Clinical Psychology. 2010;78(2):169-183. doi:10.1037/a0018555
- Holzhauer B. How money can build or break your relationship, according to experts. CNBC. https://www.cnbc.com/select/how-money-can-build-or-break-relationships/. Published February 14, 2022. Accessed February 3, 2023.
- Higher income predicts feelings such as pride and confidence. American Psychological Association. https://www.apa.org/news/press/releases/2021/03/higher-income-pride-confidence. Published March 4, 2021. Accessed February 3, 2023.
- Mindfulness definition: What is mindfulness? Greater Good. https://greatergood.berkeley.edu/topic/mindfulness/definition. Accessed February 3, 2023.
- Suknanan J. Feeling anxious about your finances? Here’s what you can do to calm your nerves. CNBC. https://www.cnbc.com/select/how-to-deal-with-financial-anxiety/. Published December 20, 2022. Accessed February 3, 2023.
