Logic vs. Emotion

Most of us fall into one of two camps:

  1. Money makes me feel [insert bad emotion]
  2. Money is not emotional

Those in this first group feel fear, anxiety, or stress. They worry about paying their bills, saving for retirement, escaping debt, and caring for their families.

The second group is filled with spreadsheet people, with expenses tracked down to the penny. These folks answer every financial question: “What does the spreadsheet say?”

I’m not here to tell you one or the other is better. I’m here to say that neither is ideal.

“Money is stressful.”

Let’s start with the first group – our worriers.

When I was in college, I skipped meals, stressed about affording school, and missed trips my friends went on. I even had a garbage bag over a broken window in my dented 2000 Toyota Camry. I’m not saying I had it the worst; I’m saying that I’ve experienced financial stress.

For the sake of this conversation, let’s assume that you’ve got a roof over your head and food on your table. You’re stressed about money, but you’re not worried about finding your next meal.

Given that your basics are covered, let’s try something. What if you applied some creativity to your financial decision making?

Here’s a prompt I like to use:

“How can I use money to improve my life, my loved ones’ lives, and strangers’ lives?”

Here’s what that might look like for me:

  • Travel with my girlfriend
  • Host dinner parties
  • Eat at restaurants
  • Run & buy running gear
  • Tip service people generously
  • Buy any book I want

Each of those things brings me joy and are made possible by – you guessed it – money.

Obviously I can’t spend all my money on those things. But, since I’ve created a spending plan that aligns with my financial goals, I know I have a portion of my monthly spend that I can use for whatever I want – these activities that bring me satisfaction.

So yes, money can be stressful. But it can also be joyful.

I’m not suggesting that a simple shift in mentality will erase the real financial pressures that many of us face. Those challenges require more  tactical solutions : paying off debt, increasing your income, creating a spending plan, and so on.

But, assuming you’ve got the basics covered, how can you shift your attitude to stress less and live more?

What could you spend money on to live a more satisfying life?

 Ramit Sethi  often says “Your feelings about money are highly uncorrelated to how much you have in the bank.”

It’s true. You could have a million in the bank and still feel stressed, scared, and anxious.

There’s no magic number that you’ll hit where your feelings will suddenly become positive.

Feeling less stressed about money comes from making a plan and using some of your income to do the things you want with the people you want. To change how you feel about money, you need to  change the story you tell yourself .

“There’s no crying in finance.”

While I’ve got some experience in camp 1, I’m more of a “MoNeY iS LoGicAl” guy at heart.

This is great in some ways and awful in others.

Being a spreadsheet person is helpful – you stay organized, you know your numbers, and you feel proud about it. I’m not anti-spreadsheet by any means.

But, if you lean too heavily in this direction, you become the person who switching savings accounts trying to chase a 0.02% increase in your interest rate. Over-optimization is sub-optimal.

Real quick: None of your spreadsheets need to include cents. If you’re tracking your saving, spending, or investing down to the penny, you’re wasting time better spent doing anything else.

Pretending that money isn’t emotional isn’t strength, it’s weakness. Learning to manage your emotions, in life and in money, is strength.

There’s often a textbook answer and a real-life answer to personal finance questions. The real-life answer takes into consideration how you feel, while the spreadsheet answer is math. The former is personal and the latter is general.

For example, should you buy or lease a car?

Textbook answer: If you need a new car, buy used and drive it as long as you can.

Potential real-life answer: I’m going to lease because I enjoy driving new cars and I can afford to.

Another example, should you stay with your job or take a new one?

Textbook answer: Stay close to the money. Do the one that offers more money.

Potential real-life answer: I may make a bit less at this new job, but I think I’d be happier.

Financial decision making IS emotional. The sooner you deal with this reality, the better choices you’ll make. We’re each trying to create more wealth, but above all else, we should be optimizing for satisfaction.

Achieving Balance

Money can be stressful, but it doesn’t have to be ONLY stressful.

Use logic to make financial decisions, but remember to optimize for what matters most, which isn’t always having more money.

Being competent at one of these isn’t enough. Each of us needs to know our numbers and be able to manage our emotions effectively.

It might be nice if more things were black and white, this or that. But, in reality, most things are somewhere in the middle.

If you can achieve balance between logic and emotion, you’re going to make better financial decisions and live a much more satisfying life.