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How to stop your emotions from clouding your financial judgement

by Jean Chatzky /  / Updated 
Image: Woman takes money out of her wallet
If you’ve made financial mistakes in the past – and you see yourself repeating those mistakes – it’s time for some self-reflection to see what’s setting you in motion.Anfisa Kameneva / Getty Images/EyeEm
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You had a bad day at work. Or maybe a fight with your significant other. Or perhaps you got on the scale this morning and it registered two pounds heavier… even though you did not eat any of the French fries that came along with last night’s dinner. And now -- even though it wasn’t in your plans – you just spent 30 minutes at your favorite online boutique dropping $250 in the process.

What happened? Emotion, that’s what.

Negative events still lingering from earlier in the day took hold. They started messing with your mind and your priorities, imploring you to do something that would make yourself feel better. So you shopped. It happens all the time.

The big problem is not that emotions, in and of themselves, are bad, but that emotions can cloud our judgment, explains Dr. Linda Henman, business coach and founder of the Henman Performance Group. When we are emotional, we are more focused on how we feel, not on what we think, says Henman. “We make decisions that we sense will bring about an improved condition, even though we don’t have the facts to back up that conclusion.”

Research also shows that women experience emotions – particularly negative ones -- more deeply than men do. Now add the fact that money-related exchanges can also be more emotion-provoking than many other topics, and you get a sense of the problem: It’s very, very difficult to separate how you’re feeling from how you react financially. It’s also very, very important that you try. But how?

Tune Into You

The first step is trying to recognize what you’re feeling – and why you’re feeling it -- which means not shutting down emotionally, but rather allowing yourself to recognize what’s going on inside you. Psychologists explain that this is about awareness. Just as you can’t change any behavior unless you’re aware of what you’re doing (see: tracking your spending or keeping a food diary), you can’t deal with your emotions until you’re aware of what’s triggering them.

Recognize Your Triggers

If you’ve made financial mistakes in the past – and you see yourself repeating those mistakes – it’s time for some self-reflection to see what’s setting you in motion. If criticism sends you to the mall, credit card at the ready – just like if criticism sends you to the freezer, spoon in hand – you need to recognize: ‘When I am criticized, I spend money I don’t really want to be spending.’ Or, ‘when I am criticized I overeat.’ Then think back on your history to discover the why? Did you see your mother shopping (or eating) in reaction to criticism from your father? Did she seem to feel better as a result?

Get To The Root Of The Issue

If a single question doesn’t open your eyes to the cause of your emotional reaction, you’ll have to dig deeper. One way is to apply ‘The Five Whys.’ This series of questions (the brainchild of Toyota founder Sakichi Toyoda) can help. Let’s go back to that $250 you spent earlier. Now you’re beating yourself up and you want to make sure it doesn’t happen again. You ask yourself: Why? And after five answers – sometimes you need more, sometimes less – you’re usually there.

1. Q: Why did I buy all those things?

A: They were on sale and I thought I needed them.

2. Q: Why did you think you needed them?

A: I thought I’d like them better than what I was currently wearing.

3. Q: Why did you feel bad in what you were currently wearing?

A: I don’t know exactly, but I didn’t look as good as I did when I left the house yesterday morning.

4. Q: Why do you think you didn’t look as good – weren’t you wearing the same thing?

A: Yes, but then right after lunch my colleague got promoted and I didn’t – and I would have been perfect for that job?

5. Q: Why did she get promoted and you didn’t?

A: Well, she always looks so put together….. Aha!

Know You Can Feel One Way And Act Another

Once you’ve started to get a grip on the emotions, feelings and moods that drive you to behave a certain way, you can begin to compartmentalize. Allow the feelings to exist independent of the actions. That begins with an acknowledgement that your feelings are valid and that you can’t just wish them away. Then examine whether your typical reaction to those feelings solves the problem. Does the new outfit get you that promotion and raise? Probably not. So, what steps can you take to deal with what’s really troubling you? If it’s that you want to perform better at work, go back to your last review and strategize on how best to deal with the criticism piece by piece. If instead, you’re spending your feelings, tracking your cash and credit card outlays to the penny can be a viable solution.

And finally, know that whenever an emotional issue rears its head, sleep – or time – is almost always your friend. Give yourself a good 24-hours (in shopping we call this a purchasing pause) for the emotions to subside. The tangible stuff will still be in our cart in the morning. The stock market will still be open for business. But you may be ready to look at the issue with different eyes.

Jean Chatzky is the financial editor for NBC’s TODAY show and is an award-winning personal finance journalist, AARP’s personal finance ambassador and host of the podcast HerMoney with Jean Chatzky on iTunes.

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