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How to Avoid the Pitfalls of Emotional Investing

How to Avoid the Pitfalls of Emotional Investing

March 26, 2024

Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life? 

— Matthew 6:25-27

How do you feel when thinking about your financial situation? If you’re like most people, you’ll experience some strong emotions, whether negative or positive. That’s because our emotions are often tied to our money habits and beliefs. These beliefs, or “money scripts,” are formed at a young age and can be difficult to change. For example, someone who knows deep down they should save instead of spend can still have a tough time veering off script because they have an emotional connection to spending (it makes them feel good) even though they understand it can be a destructive habit (they are not saving enough).

As you can see, our emotions impact our financial decisions. But the Bible tells us not to worry about earthly things like food, clothing, and money (Matthew 6:25-27). So how can we do this? First, we can ask God to help us trust Him more with our finances. We can also look into how we develop our money habits and learn how to avoid letting emotional investing control us in the wealth management process. 

The Money Script

Do you sometimes feel like the discipline to make rational and well-thought-out financial decisions must be too good to be true? Because no matter how hard you try, you just can’t seem to stick to it? Well, I am sure others feel the same way. These feelings are not uncommon and are most likely due to the emotional and psychological baggage we all 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. If your parents were confident in their ability to make wise investments, you will likely face investing with confidence as well. Contrarily, if you experienced your parents scrounging to get by and often quarreling over expenses, you may experience 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 Pros and Cons of Money Scripts

To be fair, not all money scripts are bad. Some behaviors we learn can 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 decide 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 money script.

Changing Our Money Scripts

We often think that if we had more money, we wouldn’t have any problems. But we have money problems because of how we approach money, not necessarily because we don’t have enough. This is good news! We might not be able to drastically increase our income, but 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 overcoming your money scripts is to identify them. To do this, you must become aware of your emotional responses to common financial situations. Begin to stop and notice your emotional responses to these common experiences:

  • Earning money
  • Buying things
  • Saving for the future
  • Budgeting and tracking expenses
  • Making financial decisions
  • Volatile markets
  • Healthy markets
  • Meeting with a financial professional
  • Thinking about your financial future

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.

Managing 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 protect you financially and incorporate them into your life. Habits and disciplines such as taking advantage of automatic savings, investing through your bank or employer’s retirement plan, scheduling regular family budget meetings, 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.  

Your Partner for Success

It’s easy to get carried away with emotion during the process of wealth management. That’s why it helps to partner with a neutral third party who can help you avoid emotional investing, make wise decisions, and create a financial plan tailored to your goals. 

At EagleFlight Wealth Management, we help people become better stewards of the resources God has put in their care by helping them make financial decisions that align with their values. If you’re ready to connect, get in touch to schedule an introductory meeting by calling (765) 288-1927 or emailing barry.hickey@cfdinvestments.com

About Barry

Barry Hickey is the founder, managing partner, and financial advisor at EagleFlight Wealth Management, a financial services firm based in Muncie, Indiana, helping people live and retire with dignity and financial peace by planning their financial future with a biblical worldview. Barry has been in the financial services field since the mid-1980s. In 2006, inspired by Isaiah 40:31 (“They that wait upon the Lord shall renew their strength; they shall mount up with wings as eagles; they shall run, and not be weary.”), Barry became an independent financial advisor and founded EagleFlight with the mission to help people plan for their financial future and find financial peace, and to fulfill the mission God gave him.

Born and raised in Muncie, Barry graduated from Muncie Southside and served in the Marine Corps during the Vietnam War. He holds a Series 6, 7, 63, and 66 securities licenses and the Indiana Life and Health Insurance License. He also holds the Accredited Asset Management Specialist℠, Chartered Retirement Planning Counselor℠, Certified Kingdom Advisor®, and Retirement Income Certified Professional® designations. 

Outside of work, Barry enjoys reading, watching football and baseball, and spending time with his wife (Carla), children (Kristin, Ryan, and Lauren), and grandchildren (Emmi, Cate, Ben, Maddie, Sophia, Bella, and Brady). His favorite Scripture is Matthew 6:33, “But seek first his kingdom and his righteousness, and all these things will be given to you as well.” To learn more about Barry, connect with him on LinkedIn.

Advisory Services are provided through Creative Financial Designs, Inc., a Registered Investment Advisor, and Securities are offered through CFD Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC. 2704 South Goyer Road Kokomo, IN 46902 (765) 453-9600 EagleFlight Wealth Management is not an affiliate of Creative Financial Designs, Inc. or CFD Investments, Inc.

Barry Hickey offers Advisory Services through Creative Financial Designs, Inc., a Registered Investment Adviser. Barry Hickey and Ryan Hickey offer Securities through CFD Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600.