Emotions, when channeled in a healthy way, are great. But when your emotions get out of control, they can cause you to do things that are harmful to your financial health. Here are six emotions that may be putting your personal finances at risk.
Do family members constantly come to you for a loan? If you always say ‘yes,’ out of guilt, you need to stop before you go broke. Don’t lend money to friends and family unless you have the means and actually want to provide the loan. Even if someone has done you a favor in the past, you are not obligated to dole out loans. It’s your money and your life. Besides, there’s a chance you’ll never get the money back. A Journal of Economic Psychology study titled “Lender’s Blind Trust and Borrowers’ Blind Spots” found many borrowers treat loans as gifts. If the loan does get repaid, you may not receive the entire amount. The study found that borrowers tend to think they paid back more than they actually did. Also, many borrowers are not aware of the negative feelings that lenders may feel if the loan isn’t paid back on time. So do yourself a favor and avoid letting guilt put you in a tight financial spot.
Angry feelings can cloud your ability to think clearly and cause you to make terrible financial decisions. For example, significant debt (and the debt collection calls that often come along with it) can be a source of anger. If you let this anger fester, you could become overwhelmed and not take the necessary steps to get back on track with your finances. “Being in debt can be very stressful on many levels and getting angry is one way in which we try to cope with the situation. We often have regrets about our debt because the likelihood is that we don’t have many assets to show for it. This regret becomes more prominent as we realize what it will take in terms of financial sacrifices to turn things around,” said personal finance blogger Hayley, founder of Disease Called Debt.
If you’re feeling down in the dumps, you may be more likely to overspend so you can feel happy again. That quick high may help you feel better for a moment, but it could have a negative long-term impact on your finances. Every time you’re sad, you may automatically turn to the mall as a way to temporarily forget your worries. If you had a bad day at work or just got some bad news, don’t go to the store. You’ll be more likely to justify your purchase when you’re feeling emotional. Author John Olsen said the search for happiness causes many consumers to spend lavishly. “We all want to be happy. That’s why we do everything in our power to be happy. We buy expensive cars, take our kid to the best schools, live in the best neighborhoods, buy the best houses, shop in our preferred shopping places, shop our desired products, look for our dream jobs and do literally everything in the name of attaining happiness,” said Olsen.
Fear can hold you back not only in life but also when it comes to managing your personal finances. For example, fear can cause you to shy away from investing in stocks and instead invest your money in safer vehicles such as bonds and CDs. This will only serve to stunt your wealth-building potential.
Trying to keep up with friends and neighbors will impress them but leave your bank account balance running on empty. As you struggle to keep up, you’ll rely on credit to help finance your borrowed lifestyle. Get Rich Slowly’s Holly Johnson says this is a quick way to dig yourself deeper into debt. “That’s the thing about credit. It makes you feel like you can afford it. That new car only costs $299 per month, after all, and the minimum payment on your credit cards barely budges when you add to your balance each month. It’s so easy to go through the motions — buying the things your neighbors buy and taking your family on vacations like everyone else does. That’s why easy credit is a curse for some people, and why many experts like Dave Ramsey suggest avoiding it altogether,” warned Johnson. If your friends are that concerned about how good you look or what car you drive, it’s time to get some new friends.
More from Money & Career Cheat Sheet:
- 5 Things to Know Before You Lend Money to Friends and Family
- Money Lessons You Can Learn from Your Broke Friends
- How Anger Can Hurt Your Finances