Even if you’ve taken an economics course in high school or college before, I doubt you’ve ever heard of the phrase Emotional Economics. I was thinking about how to best phrase this post when the catchy phrase came to mind.
What is Emotional Economics?
Economics is a pretty broad term that gets used in business, academia, politics, general life and even at the dinner table. Here’s the first definition that popped up at the thefreedictionary.com: of or relating to the production, development, and management of material wealth, as of a country, household, or business enterprise.
Economics by definition deals with material wealth; and as anyone would likely agree, material wealth has a direct impact on our overall well being. Our wealth impacts our standard of living which directly affects our mood and overall state of happiness. Although people say that money can’t buy happiness, being in a good financial and economic situation can definitely leave you more happier than most.
I define Emotional Economics as: the direct relationship between one’s emotional makeup and their economic and financial well being. Put even more simply, it is basically the study of how our emotions affect the amount of money we save or spend.
A good emotional economic situation is one in which you do not spend based on your current mood. A bad situation is one in which you buy on impulse.
My basic hypothesis is this: people who are emotionally strong and stable tend to be in better economic situations than those who are emotionally unstable.
Everyone has moments in which their emotions run amok. If you’ve ever lost a game, a girlfriend, a family member or even a job, then you probably know what I’m talking about.
While these moments of emotional instability may not last long, the actions we take when in these moments can have drastic consequences. Impulse buyers and binge eaters share one thing in common: they take action in a way that relieves them temporarily but hurts them in the long run.
Impulse buying is the arch nemesis of wealth building. When you buy impulsively, you are essentially throwing away your hard earned income on something that you probably don’t really need. Impulse buying is one of the leading causes for massive credit card debt in America. Impulse purchases can range from extravagant dinners and getaway cruises to luxury cars and expensive houses.
Impulse buying is bad, very bad. Fortunately, this beast can be conquered.
Here are four tips that will help you to improve your emotional economic situation and resist the urge for buying on impulse.
1. Make Good Friends
Making good friends is vital to your success. Good is a relative term and can be applied in a number of different ways. For the purposes of this article, let me define a good friend as someone who has or is on the path towards developing the traits that you wish to develop in yourself.
For example, if you want to become rich, it would be wise to have a number of close friends who also want to be rich. Friends are, in many ways, one of the most valuable assets we will ever have on earth. They can impart their knowledge and experience with us as well as support us through difficult times.
Adults also tend to spend most of their time with friends before they get married. The type of friends you hang out with will greatly influence how you spend your money, what you spend your money on and , in general, how you value your money.
Here are some general points worth noting when it comes to making good friends:
- a. Friends that spend a lot will influence you to spend a lot.
b. Friends that save regularly will encourage you to save regularly.
c. Friends that invest will encourage you to invest.
I’ve heard people say to me, “If you want to be rich, hang out with rich people.” I agree and would add, “If you want to become rich, hang out with people who also want to be rich.” The chances of success are much higher when your surrounding yourself with people who share the same goals.
2. Develop Confidence and Purpose
I believe confident people tend to be in better control of their finances because confident people tend not to be swayed by passing emotions or whims. Having purpose is a precondition to having true confidence. By confident I mean someone who is clear about who they are and where they want to be.
Confident and Purpose driven people tend to:
- a. Make more money because they are able to demand more for their work.
b. Control their purchases because they have know where and how they want to spend their money.
c. Do not turn to shopping or impulse buying as a means of catharsis.
3. Don’t Look Back, Leave Regret At The Door
If you’re in debt because of a few impulse purchases, don’t fret about it, you have the power to improve your financial situation for the better. The key is to put together a plan that will not only reduce the debt accrued, if any, as well as preventing the possibility of further impulse purchases.
Regret is one of those emotional downers that not only leaves you feeling dejected, but keeps you there. When you make a mistake it’s best to leave regret at the door and focus on improving the situation.
Here are three tips to avoid the feeling of regret:
- 1. Admit your mistakes
2. Focus on your next steps
3. Ask a friend to hold you accountable
Of the three, I find the last to be the most helpful when dealing with regret. Sometimes we just need to hear that everything will be alright and that despite our past mistakes we can still achieve our desired outcome. Good friends will help you to see beyond your mistakes until you can bring yourself to a better economic situation.
Understanding Emotional Economics is, I believe, crucial to becoming financially independent. I hope that this post helped elucidate some of the patterns of behavior that are counterproductive for wealth building. Making good friends, building confidence and finding purpose and not letting regret over past mistakes get you down, are three vital components to the getting rich with patience mindset.
After all, making a million dollars won’t help you become financially independent if you end up spending it all at the whim of your emotions.
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