Being emotional about money leads to bad decisions😮
With the global economic disruptions and unpredictability we’ve seen lately, it’s important to separate emotions from decisions.
A scarcity or fear mindset around money has cost people fortunes, whether we’re talking business, investing, or career path trajectories.
I used to have that scarcity mindset about money. It’s because I grew up without money, and money was hard to come by, and money was the reason for a lot of arguments I witnessed.
Money was therefore an emotional topic, and unfortunately on the negative side of emotions. This is how most people experience money.
Too many of us worry about losing money. We fear wasting money. We see the world as a zero sum game; “For every winner there is an equal loser.” We then become skeptics, or worse; Pessimists about any financial decision.
Not enough people focus on the potential upsides of money. An understanding that money is created by your effort, and that it is endless in supply. An understanding that whatever we lose, can also be replaced. An understanding that some expenses are actually investments that pay off for years, or a lifetime.
So, how did I break that scarcity mindset about money?
There are several lessons, but I’ll share a few that should raise your self-awareness, so that you make better decisions (and actions).
Start by reframing the words and sentences you use, regarding money. Also notice the phrases that others use around you, to gauge their own awareness levels.
Common phrase:
“I can’t afford that.” (this shuts off your brain)
Replace with:
“How can I afford that?” (this engages your brain to problem solve)
Think about this, I’ll bet there have been things in your life that you could not afford, but you figured it out and made it happen. When we want something bad enough, we always figure it out. That’s an example of the differences between the phrases above.
When considering purchases vs investments:
Common phrase:
“How much will that cost me?” (scarcity – “cost” signals lost)
Replace with:
“What is the investment? What’s the return on this investment?”
Notice that the pessimistic common phrase may lead you to decline to take action, where as understanding the long-term benefits may create a positive action. Also note that a return on an investment isn’t always financial. It could be joy, more free time, more comfort, access to opportunity, etc.
The second lesson came through my corporate career. Chances are, you are also having to make financial decisions at work, especially if you aspire to make it to middle-management and higher.
As a young Jr Project Manager in oil/gas, I remember managing some small projects that were in the 750K-1M range, and feeling super nervous about making decisions because it seemed like that was a lot of money to me. Signing a purchase order for 100K would make me feel anxiety.
Twenty years later, I was managing projects in the 200M-300M range, and I was approving purchase orders for 50-100M, with zero anxiety or stress. I also led the technical bid strategy for a startup that landed 1 Billion in awarded contracts in a single year.
What was the difference between the stressed younger version vs the experienced later version of me? I had learned to make important decisions, regardless of the money size. I had to learn to separate emotions from critical decisions.
It’s normal to feel an emotion about money, and that will change for you (hopefully) over time. The successful have learned to separate their emotions from decisions. They’ve learned to rely on logic, calculations, experience, risk mitigation, and understanding the difference between investments vs wasteful spending.
Whenever you’re feeling panic, doom and gloom, or anxiety about financial decisions, that’s a huge indicator that you’re moving away from logic. It should serve as a warning.
The pros go back to logic, calculations, and experience to make financial decisions. They capitalize on emotional buyers and sellers.
-Tony