The Money Script: Don't Let Your Emotions Control Your Wealth
This article was published in the March 2024 issue of the Traverse City Business News and can be read in its entirety below. Black Walnut Wealth Management contributes articles and is featured in various media outlets.
Most of what we do every day comes from habits driven by thoughts and emotions. Even the most successful investors sometimes experience feelings of stress or excitement when they deal with money. Take a moment to think about what you do each morning. Do you pop out of bed right away or take your time easing into the day? Do you take a shower before or after breakfast? You may not even notice these things unless someone points them out to you. They are learned responses that guide you through life, and they can greatly influence your decisions.
Researchers have discovered that the same idea applies to money. How you see, feel, and think about money shapes how you deal with it, talk about it, and work toward your financial goals. Regardless of your level of wealth, we all have what’s called a “money script” and, undoubtedly, the financial decisions we make from that script are influenced by our emotions. Let’s dive deeper into the origins of our money habits and explore ways to keep emotions out of the script.
The Money Script
With all financial decisions, but especially with bigger-ticket items like homes, vehicles, or vacations, it’s wise to remain rational and carefully consider potential consequences before pulling the trigger. Do you sometimes find it challenging to remain disciplined or patient when making large (and usually exciting) purchases? You’re not alone. These feelings are often tied to the emotional and psychological baggage we carry around relating to our money—otherwise known as our money scripts. And, as with most of the baggage we’ve lugged into our adult lives, these scripts usually start forming at a very young age.
Even though we may not be aware of it, we spend our childhood picking up on how our parents and other significant role models relate to and handle money, and over time, our brains are subconsciously trained to respond in similar ways. As a successful investor, perhaps your parents were confident in their ability to make wise investments, and that habit passed down to you. Contrarily, someone else who experienced their parents scrounging to get by and often quarreling over expenses likely has some pretty strong feelings of guilt when making certain purchases.
The seeds of money scripts are planted in childhood, watered by observation, and eventually grow to influence your emotional beliefs about finances as an adult. For this reason, it is vital to be intentional and diligent in talking to your kids about money and modeling healthy financial behaviors. It is just as important to take the time to examine yourself and understand your money scripts and how they influence your financial behavior.
The Negative Side of Money Scripts
To be fair, not all money scripts are bad. Some behaviors we learn plant seeds for beneficial emotions about finances. However, other behaviors, such as money avoidance, focus on financial status, or the idolization and even worship of money, can be flat-out detrimental. Unhealthy emotions and belief patterns can lead to all kinds of financial problems, such as financial infidelity, compulsive buying, pathological gambling, and financial dependence. Certain money scripts have been tied to lower levels of net worth, lower income, and higher amounts of revolving credit.
Those may sound extreme, but have you ever let panic during a market downturn take your focus off of your long-term investing plan? Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? Have you ever wreaked havoc on your budget for the momentary high of acquiring something you really wanted? All of these behaviors stem from your personal money script.
Money Scripts Can Be Changed
It seems that no matter how big our accounts may get, we still think that if we just had more, our stress and worry would disappear. But our anxiety around finances is more about how we approach money, not necessarily because we don’t have enough. This is good news! Even if our income doesn’t continue to increase exponentially, we can learn to control our attitudes and perceptions. Our money scripts may be ingrained from childhood, but they are not permanent. With a focused and concerted effort, they can be changed.
The first step you must take in rewriting your money scripts is to identify them. To do this, you must become aware of your emotional responses to common financial situations. Start taking notice of your emotional responses to these common experiences among high-net-worth individuals:
- Assessing your risk
- Inflation
- Safeguarding your wealth
- Unexpected global events
- Making big financial decisions
- Volatile markets
- Healthy markets
- Changing tax codes
How do these things make you feel? Anything that elicits strong emotions warrants further reflection. Keep in mind that negative emotions are not the only ones that can harm your financial life. Some positive emotions, like optimism and self-confidence, can bring about negative results if unwarranted and left unchecked.
How to Manage Emotional Money Decisions
The key to changing your money scripts and developing healthier money habits is learning to control your emotions. You can also build some new, healthy habits that shield you financially and incorporate them into your life. Habits and disciplines such as scheduling regular meetings with your advisor and enlisting the help of someone reliable to keep you accountable are great places to start. Eventually, you will learn how you respond to emotional triggers and you can then take steps, like mandating a “cooling off” period for yourself, before making any decisions.
Finally, you need to be willing to forgive yourself when you make mistakes. Leave the past in the past and move forward with the new knowledge you have gained. Choosing to forgive yourself for past mistakes frees you up to be more effective with your new tools. As you begin to collect victories, both big and small, you will likely find it even easier to extend forgiveness.
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