Josh Gupta, CFP™ Chartered MCSI
Chartered Wealth Manager/Planner

One basic principle that can help everyone manage their finances better is understanding that money is emotional. Everyone experiences emotions, both and good, and yet too few of us realise how they affect us financially. The truth is our emotional competence plays an instrumental role in our overall financial success, and our lack of emotional competence hampers many from building the life they want for themselves and their family. As a chartered financial adviser, it’s my passion to help clients develop a healthy relationship with their finances, for their own benefit and for their family.

As pointed out in an article I recently read on Vogue Financial, money and finance are things we deal with every day but it’s rare that we take into account how our emotions affect what we do and how we perceive money.

One of the key reasons a good financial planner is necessary in everyone’s lives is for the same reason you get a second opinion on the tie you chose this morning, or the classic “does my bum look big in these jeans”, you need an informed professional financial advisor because they are not you. They are dispassionate about your finances.

Finances, money and emotions and intrinsically connected and sometimes is the lack of acknowledging this connection that can cause issues and financial woes. How many of us have felt guilty after looking at a credit card statement? “Oh why did I buy that?” Then not paying the card off compounds the problem by building debt on guilt, or indeed shame.

A starting point for any financial plan should be a clear understanding of where you are, what assets you have, and what debts you have. This may seem like an easy proposition, but if your finances are not in good shape, if you have made some bad decisions in the past this exercise will rekindle feelings of remorse, guilt, and in some cases failure. Laying this out can sometimes be an uncomfortable process, but it is the first step in trying to remove emotion from the equation.

Have you ever thought about what money means to you?

This question obviously means different things to different people and will vary depending on your stage in life, but by determining why money is important to you and how it relates to your values you can start to form a financial plan that will get you where you want to be. It’s something I always ask my clients as I get to know them holistically.

When you ask yourself “why is money important?” focus on the benefit, not so much what the product can do. What is the emotion that drives the importance you place on your financial stability? Sure, money is the means by which you purchase things, but you buy a house to keep your family safe and provide them a good life. Deep down most financial decisions are driven by strong emotions. Acknowledging this will allow you to focus on what is important to you and acknowledge things that are not so important.

Ask yourself this question. How many financial mistakes have you made that were driven by emotion?

The market is bombing and you sold rather than staying with your longer term goal. The car you bought was way over your budget and the payments far exceed what you can manage. Have you ever bought an investment on a tip from a friend?

Understanding what you have, and what you want, will let you form a financial plan that will remove the emotion from how you manage your money and how you invest.

Spending is something we all do but the decisions behind discretionary spending are generally driven by emotion. How we justify our spending is based on our understanding of what you have and how you use it. Creating a budget is another step that allows you to examine what you spend your money on and why. Creating a budget allows you to understand where your money is going and make you think twice before making an emotional discretionary spend.

Insurance, especially life insurance, is strongly tied to our base emotions. We all feel that we will never die, that we are generally fit and healthy, taking out insurance, for life, health and income can sometimes be seen as an acknowledgement of a failing. Whereas, in fact insurance is exactly that, just insurance, so if things do go wrong you are covered. There is no emotion in the process of travel insurance as we inherently understand that things do go wrong on holidays. Why do we find it so hard to acknowledge this and bring it across into other areas of our finance?

Emotive investing is the undoing of many a good financial plan. Warren Buffet once said that “Someone is sitting in the shade today because someone planted a tree a long time ago.” This should be the attitude you take to investing, which is a long-term slow process. Never invest on tips from friends. If the market is tanking do not panic, having a long-term investment strategy that includes regular investments and reinvestments of income will succeed. Very much like planting a tree, you put a seed in the ground and water it and it will grow. It may get a fungus now and then, but don’t panic, don’t pull the tree up to see what is happening with the roots. Let is grow and provide the shade you need.

As professional financial planners, we fulfil the obvious roles of advising you on financial strategy, retirement, investment, asset protection, overall wealth growth and all things financial, but it’s the emotional benefit of these services that is most often overlooked. How often have you experienced stress associated with your finances? How many times have strong emotions come into play when dealing with your estate planning?

By providing unbiased advocacy and always keeping your interest at the top of mind a good financial planner will not only improve your financial position but improve your overall emotional wellbeing.

Remember:

  • Leave emotion out of your financial decisions.
  • Understand how emotion can focus your goals.
  • Getting your financial position under control will improve your life and emotional well being.

If you feel that your relationship with money and your feelings surrounding your finances might be improved, then do please contact me. I’d be delighted to help.

Source: Vogue Financial

Josh Gupta, CFP™ Chartered MCSI
Chartered Wealth Manager/Planner

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