Emotions and Money

Kapitalust, another PF/investing blog I follow, very recently wrote about something which I have been thinking about for the past few weeks – emotions vs. money.

Recent Events

Well, let me tell you what happened to me recently. I had some family stay, one of whom decided to cause a big argument after we all a lovely day out together. Typically, emotions ran hot and all sorts of nonsense was said. The first sibling accused us of not providing food for the whole family and not being hospitable without question. Another family member joined in and said we were too focussed on our budget.

The Context

Of course, neither of these accusations were true, and both siblings were speaking out of their own hurts and their own negative past experiences. The first sibling didn’t pay their rent, because they spent their housing benefit on something else, so ended up in “temporary accommodation” before being very lucky and getting a pretty decent council house (actually better than their previously privately rented house), the other sibling didn’t pay their mortgage (even though it’s pretty small and close to finished) because they spent their money on something else and their payments are now in arrears, but thankfully they have have a plan to pay it off completely.

 

Arguments never really give clarity to situations and pretty much always cloud over the truth of matters. As Kapitalust said in his blog post: “When it comes to stimulus and reaction, those who let emotion control their decision making process have a very narrow gap between the two. Those who use logic and reason in their decision making process have a larger gap”. These two family members have pretty much no gap between stimulus and reaction.

Clearly, both of these family members are pretty irrational and make decisions based on emotion. Now, we didn’t have much growing up, there were plenty of hand-me-downs, no take-away food, no big birthday parties, only one parent working with several kids. So 4 of the 6 of us got jobs as soon as we could e.g. paper round, Saturday jobs, etc. I bet you can guess that the relative who accused me is one of the ones who didn’t get a job…

Making decisions based on your emotions is a bad idea and sadly often ends up being a terrible mistake. Perhaps this is a reason for the high divorce rates in Western countries? We all too often base our decisions on ‘feelings’ rather than deeply thought-through decisions. Don’t get me wrong, I do believe that emotions can really help us, but they are not our source of logic, or our basis of information. This is not advice to be a repressed person, or become a Vulcan-like logical robot. It just means that you should aim to base your decisions on something a little deeper.

The subtitle of this blog is ‘aiming for a valuable and purposeful life’. I know I have emotions and I enjoy the human rollercoaster that they sometimes make me feel like I’m riding, but I at the end of the day, you have to know there is an end destination to that rollercoaster. That comes from having a sense of value and purpose about your own life.

This is the true reason why people make terrible decisions, especially financial ones – because they do not know their own value and purpose. And this is a really sad situation to be in. They think that they can fill that void with ‘stuff’ like houses, cars, clothes, maybe even experiences like extreme sports or travel. There is nothing wrong with those things, but I think you and I can often tell when someone is trying to fill the emptiness in their own life with objects that will never satisfy them.You need to think about your life. You need to have a little imaginary exercise and ask yourself these types of questions:

• Who are you? What are your characteristics, personality, and talents like?
• What do you enjoy, truly? And I don’t mean that pizza you ate last night, I mean the deeper things in life like what are your passions e.g. music, walking in the countryside, being creative with woodcrafts or cooking, or knitting or team sports, etc.
• Do you feel like you may have a vocation? To feed the homeless, to be a nurse/dr/teacher/pastor etc?
• Where do you see yourself in five years, ten, or twenty years?
• Do you have dreams, no matter how obscure or wild, small or large? Perhaps you’ve always wanted to go to the Grand Canyon, run a marathon, feed ducks with your grandchildren, or simply enjoy learning a new skill like woodwork or car repairs?

Beginning to imagine a future for yourself is a really important and critical part of your own self-development. But you need to keep doing it every so often. Perhaps write a list of goals and dreams down and review it several times per month/year. It is really sad that we often go through negative experiences as children, which can affect our ability to see our future, but there is hope and there is a future. Anyone who says otherwise is a downright liar! You are not the only one who has suffered. Pretty much everyone has hurts from the distant or recent past, but as the saying goes: ‘hurt people, hurt (other) people’Relating it back to our finances…

All of this is really about our relationship to our own past, present, and future self. Some people might say you exist in all three states at once, although I think if you concentrate too much on your past, you occlude the vision of your future self, and have a terrible time being yourself in the present!

But part of the reason why I like saving, budgeting, and dividend growth and value investing is because it concentrates on the long-term, the more middle-to-distant end of the future. When you begin to imagine, and have the beginnings of a vision of yourself, you operate in this manner, essentially saying: ” I believe there is a future ahead of me, and that future is going to be better than my present”. This is because if you can see a future for yourself, that means there is life ahead of you, and where there is life, there is hope.

This type of money management means you live realistically in the present and look forward with hope to the future. It does not try to quickly satiate some kind of void in life, or attempt to the soothe pain of the past with a useless salve, but it is a means to achieve more freedom. This freedom is often just spoken of in terms of time, because when you are retired and living off those savings and dividends etc. you can choose to use time much more flexibly. But importantly, this freedom should also include freedom from your past self’s problems, because you are working towards that hopeful future day…

I’m not going to splurge the (hopefully) substantial amount of capital when that future day of retirement arrives, but instead I will use that freedom to spend more of my time building relationships with my family (who I love to bits, despite their and my own flaws), my friends, doing more voluntary work, and yes to do some things that I am interested in and have dreamed of like travel, without the hindrance of being tied to a 9-5 job. It is a journey towards that day, and I do hope that I will be free from my past self’s hurts.

Let me know what you think about these things…