How to Budget so that Your Emotions do not Affect your Financial Stability.

In the current economic climate, it is perhaps more imperative than ever to be able to learn how to manage money. Pensions may not exist by the retirement age for most young people today as a direct result of this financial meltdown; equally, student loans and the high cost of mortgages may cause some to put financial security on the back-burner out of sheer apathy. If prospects for a bright financial future look utterly bleak, why bother looking in detail about how little can be done about it? This sense of monetary despair could be the turning point for the biggest mistake many people make.

Self-esteem and savings

How you feel about yourself in your own work environment affects your earning potential. If you are a woman, research shows that you will be inclined to underestimate your abilities. Understating your skills or showing self-doubt won’t help in acquiring a pay raise or promotion. As a result, you could end up caught in an emotion-led spending trap of buying little things to cheer yourself up for feeling underappreciated, and those little things can add up to a significant amount, as David Bach’s ‘the latte factor’ theory attests to in his book, “Smart Women Finish Rich.” But all it takes is a little forward-planning and this ‘latte factor’ could work in your favour.

Studies have shown that sometimes, preparing for the worst case scenario can really help to eradicate fears that would otherwise plague people and lead to overspending. If you imagine losing your job and spending a year looking for another one, you might conclude that adding up the cost of every latte and takeout dinner would be worthwhile in calculating what you could afford to cut back on now, in order to set up savings accounts for future emergencies. Alternatively, some form of worker cover insurance could help provide the shortfall emergency fund while income remains low. With greater clarity on your financial situation, you can find a firmer sense of being in control and having choices about your future that help you avoid the spiral of emotion-driven overspending. Shopping around for the best rate of savings accounts rather than taking the easiest offer from your current bank could also make all the difference in accruing savings steadily rather than as a laboriously slow and disappointing process.

The cost of perfectionism

The flipside of the worst case scenario outlook is perfectionism. In trying to make a life-changing experience such as planning a wedding or starting a family be the best case imaginable, you can also lose sight of what is a reasonable and what pushes you above and beyond your means. An offer of a ‘once-in-a-lifetime’ trip can push you into the same mindset (i.e. that you only do it once, so you can break the budget to make it perfect). This can cause enormous amounts of stress and lead to an astronomical debt burden. People often overlook the financial implications of the dream of a lifelong happy marriage. Most people feel that to anticipate the worst would be to irreversibly alter the dynamic of their relationship. However, according to LA-based ““, statistics have shown that, “couples who create Pre-Nups actually have a better chance of having a successful marriage”. If marriage is one of the most important emotional contracts people enter into, surely the outcome of this has an enormous impact on future spending.

Acclaimed women’s memoir and self-help author Elizabeth Gilbert says of pre-nups that it’s “better to set your own terms than to risk the possibility that someday down the road unsentimental strangers in a harsh courtroom might set the terms for you”. Surely, this security alone and the achievement of getting through such a difficult conversation as that of how to set the terms of a pre-nuptual agreement would boost the confidence and self-esteem of anyone worried about their financial future.

Once those financial parameters are in place, along with a budgeting system that works for you, will a healthy and enjoyable sensation about spending materialise? Not necessarily, as writer Rhonda Byrne mentions in ‘The Power’, many people grow up having negative beliefs about money, which filter into how they handle money. If this is an issue for you, she advises looking at those in-built feelings about money and actively turning them around. When you pay a bill, buy someone a present, or buy groceries, she advises changing your feelings to that of gratitude that you can have those services, have those friends, and can enjoy that food. Perhaps this way of looking at how you feel when you actually spend money you can afford on things that are ordinary day-to-day things, can have a positive impact on your overall spending that will prevent negative emotional spending that can lead to debt.


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