“It’s just emo­tion tak­ing you over”— great in a song, bad for your fi­nances. Read up on how your mood af­fects your money de­ci­sions.

Good Housekeeping (Philippines) - - News -

PIC­TURE THIS: You’re in a mall af­ter a par­tic­u­larly rough day at work. The pro­mo­tion you were vy­ing for was awarded to some­one else, and now you feel de­jected. You walk past the shoe sec­tion where a pair of de­signer heels catches your at­ten­tion. You de­cide to try them on, and even though they cost way more than you’re nor­mally willing to spend on footwear, you pur­chase them any­way. “Just this once,” you tell your­self. “I need this af­ter such a dis­ap­point­ing day.”

The fol­low­ing day brings bet­ter news. De­spite los­ing out on the pro­mo­tion, you find out your boss is as­sign­ing you to lead the team work­ing on your dream project. More­over, when you get home that evening, your daugh­ter tells you she’s re­ceiv­ing an award at school. Over­joyed, you log on to your fa­vorite on­line store and pur­chase two dresses, one for you and one for your daugh­ter, plus a new shirt for your hubby, to wear on the day of your daugh­ter’s award­ing cer­e­mony. You all have a closet full of clothes to wear, but you don’t think twice about plac­ing your or­ders. “My fam­ily de­serves this,” you tell your­self. “We de­serve these re­wards for our hard work.”

When you find your­self in sim­i­lar sit­u­a­tions, it’s easy to be­lieve they’re iso­lated cases that won’t have se­ri­ous reper­cus­sions on your fi­nances. But mo­ments like these are hardly spo­radic. De­cid­ing to spend your money based on how you feel is, in fact, the way we’re all wired to act.

In the book Descartes’ Er­ror: Emo­tion, Rea­son and the Hu­man Brain, Por­tuguese-amer­i­can neu­ro­sci­en­tist An­to­nio Da­ma­sio writes that emo­tions are an “in­dis­pens­able foun­da­tion for ra­tio­nal­ity.” His claims are based on a study he be­gan over 20 years ago, which found that peo­ple who suf­fered dam­age in the part of the brain that gen­er­ates emo­tions, al­though they re­mained ca­pa­ble of un­der­stand­ing what they should be do­ing in log­i­cal terms, lost the abil­ity not only to feel emo­tions, but also to make even the sim­plest de­ci­sions, like what to eat.

What Da­ma­sio’s re­search proves is that feel­ings shape our de­ci­sions. Even the choices we be­lieve are most log­i­cal have been in­flu­enced by our emo­tions first.

“We make de­ci­sions based on how we un­der­stand things in that part of our brain, and then we ra­tio­nal­ize it later,” says Marvin Fausto, whose work in the in­vest­ment and fund man­age­ment in­dus­tries for over 30 years has made him fa­mil­iar with re­search and the­o­ries on the sub­ject of emo­tions and money, not to men­tion privy to the ways hu­man na­ture af­fects fi­nances.

Fausto adds, “We are emo­tional be­ings, so our be­hav­iors are driven emo­tion­ally. It’s the way we do things be­cause our mind­set is not as log­i­cal as we might be­lieve. There are a lot of emo­tional vari­ables that af­fect it.”


It’s im­por­tant to un­der­stand the role our emo­tions play in de­ci­sion-mak­ing, es­pe­cially when it comes to our fi­nances, lest they lead us to less-than-fa­vor­able sit­u­a­tions. For in­stance, you might think your im­pulse pur­chases are few and far be­tween, but if you don’t rec­og­nize and ad­dress the un­der­ly­ing emo­tions that push you to make them, you might be sur­prised to find your­self drown­ing in credit card debt one day. Af­ter all, small pur­chases may seem in­con­se­quen­tial at the time you make them, but they cer­tainly add up.

“If you’re not aware of your emo­tions, that would re­ally pro­pel you to un­con­sciously make un­nec­es­sary or ir­rel­e­vant ex­penses,” says Ron­aldo A. Motilla PH.D., a clin­i­cal psy­chol­o­gist, pro­fes­sor, and head of the In­te­grated Life­style and Well­ness (ILAW) Cen­ter in Miriam Col­lege in Que­zon City, and pres­i­dent of the Psy­cho­log­i­cal Em­pow­er­ment for Re­sources and As­pi­ra­tions (PERA) or­ga­ni­za­tion, which pro­vides fi­nan­cial coun­sel­ing ser­vices to over­seas Filipino work­ers and their fam­i­lies.

“That’s why the ques­tion we ul­ti­mately ask our clients is: Is this pur­chase or de­ci­sion bring­ing you closer to your goals? Or are you just feed­ing your emo­tions?” adds Dr. Motilla. “Emo­tions are re­ally pow­er­ful and, when un­man­aged, could lead you to make or break your fi­nances.”

It doesn’t stop at spend­ing habits, though. Here are other ways emo­tions can af­fect your fi­nan­cial well-be­ing.


Re­tail ther­apy is real. You don’t need to look far to find proof that peo­ple turn to shop­ping when they need a quick pick-me-up on a bad day. And there are sur­veys and stud­ies that sup­port it.

It’s cer­tainly not a long-term so­lu­tion to what­ever prob­lems may be plagu­ing you at the time, but buy­ing some­thing you like has been proven to make you hap­pier, at least tem­po­rar­ily. So in a sense, shop­ping could be ben­e­fi­cial. It only be­comes a prob­lem when you overdo it, and you spend more than you can af­ford.

But here’s the rub: Ac­cord­ing to re­search from Jen­nifer S. Lerner, a so­cial psy­chol­o­gist from Har­vard Univer­sity in the U.S., sad­ness in­creases the amount peo­ple are willing to spend for a com­mod­ity, “be­cause they seek self-en­hance­ment.” In an­other study, Lerner and her col­leagues found that sad­ness makes peo­ple im­pa­tient, ren­der­ing them in­ca­pable of de­lay­ing grat­i­fi­ca­tion.

Doesn’t sound like a good com­bi­na­tion, does it? Rather than spend­ing a for­tune on an im­me­di­ate but tem­po­rary ben­e­fit, think of all the other, more re­ward­ing ways you could ap­pro­pri­ate your money (read: sav­ings and in­vest­ments).

Fund ex­pert Fausto il­lus­trates: “The con­cept of ‘now ver­sus later’ is very im­por­tant in terms of our de­ci­sion-mak­ing. For ex­am­ple, you got your salary, which is re­ally the re­sult of your hard work. So you want to re­ward your­self by buy­ing some­thing now ver­sus buy­ing some­thing later. So if you see a P20,000 bag, you think, ‘I’ll buy the bag to­day be­cause I can see it. If I save P20,000 for re­tire­ment, I won’t buy the bag now. But the bag is so con­crete, and the P20,000 for re­tire­ment doesn’t re­ally mean any­thing. What am I go­ing to do with P20,000 when I re­tire? That’s 10 years or 20 years from now, I don’t even know where it’s go­ing to go.’ So, the idea of ‘now ver­sus later’ is a prac­tice that can some­times make your de­ci­sion ir­ra­tional, or not ideal.”


Mean­while, more pos­i­tive emo­tions like joy or hap­pi­ness can help you make bet­ter de­ci­sions, sim­ply be­cause they usu­ally give you a sense of con­tent­ment, and a more con­struc­tive outlook on things.

“I think you make poorer de­ci­sions when you’re sad be­cause you want to make your­self happy,” says Fausto. But too much of a good thing can also be bad.

Ex­treme hap­pi­ness can lead you to be­come over­con­fi­dent or op­ti­mistic about what you can or can’t af­ford. For ex­am­ple, an un­ex­pected bonus or big com­mis­sion might lead you to sud­denly book an out-of-town trip for the en­tire fam­ily. Or the sales staff’s glow­ing com­pli­ments at a store might push you to buy a P4,000 dress you don’t need.

In the world of in­vest­ments, be­ing overly con­fi­dent and op­ti­mistic are com­mon be­hav­ioral pit­falls that ex­pose in­vestors to greater risk.

“When we’re mak­ing a lot of money, or when we feel so good about our­selves, and we’re do­ing things right, we tend to be over­con­fi­dent,” ex­plains Fausto. “Parang, we feel we’re al­ways right, so we make de­ci­sions based on that, and be­lieve that they’re all go­ing to be cor­rect be­cause our ex­pe­ri­ence says that it is. For ex­am­ple, in the stock mar­ket, if the stocks be­come ex­pen­sive, the ra­tio­nal thing to do is not to buy any­more. In fact, you should sell. But when you’re over­con­fi­dent, you do oth­er­wise. That is what will lead you to fail­ure.”

He con­tin­ues, “The over-op­ti­mism comes when you are buy­ing stocks even at a higher price. So you have that kind of think­ing that noth­ing’s go­ing to go wrong. And then, you make bad de­ci­sions.”

Dr. Motilla agrees, “Some peo­ple, be­cause of be­ing over­joyed, could make the wrong de­ci­sions, too. That’s why we al­ways say, when you’re ex­tremely happy—or ex­tremely sad—don’t make any de­ci­sions be­cause, more of­ten than not, they won’t be very wise de­ci­sions. So you have to al­low your emo­tions muna to calm down, be­fore you make de­ci­sions.”


An ill tem­per can re­ally mess things up. You know how peo­ple say hurt­ful things when they’re an­gry, but re­gret it once they’ve calmed down? Anger can have a sim­i­lar ef­fect on your fi­nances. This in­tense emo­tion can se­verely cloud your judg­ment, and thus lead you to make rash and pos­si­bly de­struc­tive de­ci­sions, be­fore you can even think about their con­se­quences.

Per­haps you were left en­raged af­ter a tem­po­rary mis­un­der­stand­ing with your hus­band and let off steam by throw­ing your phone against a wall. Once you cool down, you and your hubby will most likely talk things out and make up. But you’ll also re­al­ize that you may need to shell out some money to repair or re­place your dam­aged phone.

“So many ir­ra­tional be­hav­iors can come out of anger,” says Dr. Motilla. “Babasa­gin mo la­hat, pupunitin mo mga tit­ulo, itat­apon mo… If you’re not aware, you’re go­ing to be led by your anger. It’s go­ing to eat you up, so you’re re­ally not go­ing to be able to de­cide ra­tio­nally or log­i­cally.”

More­over, an­other study by so­cial psy­chol­o­gist Lerner, pub­lished in the Jour­nal of Per­son­al­ity and So­cial Psy­chol­ogy, reports that an­gry peo­ple tend to seek big­ger risks. Mean­while, a study by re­searchers from the Univer­sity of Cal­i­for­nia, Los An­ge­les, pub­lished in the jour­nal Cog­ni­tion and Emo­tion, found that anger makes peo­ple more stub­born.

Now, an ap­petite for risk can surely serve you well when it comes to in­vest­ments. And hard­head­ed­ness can help you per­sist with your fi­nan­cial plans and goals. It be­comes a prob­lem when you refuse to let go of poorly per­form­ing as­sets, or gam­ble all your funds to buy only the most spec­u­la­tive stocks.


And then there’s fear, which is as in­flu­en­tial as, but has the ex­act op­po­site ef­fect of, anger. Ac­cord­ing to Lerner’s re­search, while an­gry peo­ple tend to take big­ger risks, the fear­ful

tend to avoid it. In pt hoer ti on­nveo sf ty moe­unr tin­lecx­oim­coen, from each project. this trans­lates to loss aver­sion.

Make this a habit. It will “When you h av eh lo es­lp­sayvo eur ts hi or onu,gy­houlep arne fer pe­ri­ods. to avoid los­ing over do­ing some­thing to po­ten­tially gain the equiv­a­lent amount,” ex­plains Fausto. “For ex­am­ple, your feel­ings at the prospect of los­ing P100,000 out­weigh the prospect of gain­ing it. So the pain of po­ten­tially los­ing some­thing is so great that you just don’t want to risk it.”

Also a com­mon be­hav­ioral pit­fall, this sense of fear does not work well for in­vestors. While there’s cer­tainly some­thing to be said about be­ing cau­tious—tak­ing cal­cu­lated steps to re­duce or bal­ance out the po­ten­tial for losses—the very na­ture of in­vest­ing re­quires you to be open to risks if you want to gain great re­wards.

“Be­cause of that aver­sion to loss, you some­times just don’t want to make any risky de­ci­sions at all. But in terms of in­vest­ing, get­ting into a busi­ness, even en­ter­ing a re­la­tion­ship, ev­ery­thing you do in life in­volves risk,” says Fausto.

Con­versely, fear can help you make prac­ti­cal choices. For in­stance, the fear of los­ing money over, or not hav­ing enough for, an emer­gency will push you to build an emer­gency fund. Mean­while, the fear of leav­ing your loved ones empty-handed can mo­ti­vate you to buy life in­sur­ance.

These are wise steps to take, though it’s best to make sure you have the re­sources to see them through be­fore you make any fi­nan­cial com­mit­ments. Of­ten, fear—or too much of it—can also drive us to cling to things that we be­lieve can save us, even if we don’t need them or have the funds to pay for them at the time.

Dr. Motilla il­lus­trates, “For ex­am­ple, natatakot ka, ‘Baka ma­sunugan tayo, so we have to get fire in­sur­ance.’ Or ‘Baka magkasakit tayo sa fu­ture, so we have to get health in­sur­ance also.’ So it’s re­ally fear that’s the rea­son for those de­ci­sions. Al­though some peo­ple might say they’re prac­ti­cal, do you re­ally need these things? Es­pe­cially if you don’t have the ca­pac­ity to pay for them now, kukunin mo pa ba sila?”


Now that you’re aware of the power emo­tions hold over your de­ci­sions, it’s time to find out how you can man­age and con­trol them.


The first step to gain­ing con­trol over your emo­tions, says Dr. Motilla, is to de­cide to be­come a more mind­ful per­son. “Any kind

of change will have to start with a de­ci­sion, a choice na, ‘I have to be­come a mind­ful in­di­vid­ual,’” he says.

Mind­ful­ness is a psy­cho­log­i­cal prac­tice that in­vites you to pay closer at­ten­tion to your ex­pe­ri­ences, and the in­ter­nal re­ac­tions they elicit. It can give you a bet­ter grasp of the in­tan­gi­ble fac­tors that direct your thoughts and de­ci­sions.

Once you’ve iden­ti­fied these fac­tors, “name them,” says Dr. Motilla. “Ask your­self, ‘What am I feel­ing right now?’ Don’t be afraid kasi you can feel more than one emo­tion. Pwe­deng ‘I’m anx­ious right now, pero kahit ganu’n, me­dyo may gaan ng loob pa din.’ Some­times there’s that mix of emo­tions eh. So, name the emo­tions— kasi some­times the emo­tions can be re­ally vague for you. Pero once you have a name for them, you have a bet­ter grasp of them.”


“When you feel ex­treme sad­ness or joy, out of im­pulse na lang or re­ac­tiv­ity ang de­ci­sions mo. That’s why they say, when the de­ci­sion is made out of im­pulse, ta­la­gang hindi siya ma­g­a­nda,” says Dr. Motilla. “So you have to turn that re­ac­tiv­ity into proac­tiv­ity. Kasi the wave of emo­tions is the first thing that in­forms your de­ci­sions. And more of­ten than not, you would make de­ci­sions in re­ac­tion to those emo­tions. So kailan­gan proac­tive ver­sus re­ac­tive ka.”

Be­ing proac­tive means giv­ing your­self time to as­sess the sit­u­a­tion you’re in, and considering the dif­fer­ent ways you can re­spond to it. Mind­ful­ness also comes into play here.

Dr. Motilla il­lus­trates, “Let’s say may nagpa-li­bre, kasi nanalo ka sa isang game. ’Pag proac­tive ka, pag-iisi­pan mo, ‘Teka muna, gusto ko sila i-treat, pero may bud­get ba ako? My bud­get is meant for the tu­ition of my son, so hindi na lang muna.’ You don’t al­low your­self to just re­act to the de­mands.”

He con­tin­ues, “So, first, be aware of what you’re feel­ing. Then feel it, and af­ter­wards, that’s the time to iden­tify what de­ci­sions you’re go­ing to make. When you’re mind­ful, it will en­lighten you, and that will give you more op­tions on how to re­spond, rather than be­ing fix­ated on one, like spend­ing to ad­dress your emo­tions.”


When you make some­thing, like sav­ing, a habit, it takes the emo­tion out of that prac­tice. “The only way we can take out the emo­tion is when we start the habit of do­ing one thing over and over again. Like set­ting aside a lit­tle per­cent of your money ev­ery time,” says Ryan de Vera, a regis­tered fi­nan­cial plan­ner and en­tre­pre­neur. “For ex­am­ple, at home, ev­ery time we earn, my wife and I put the money in jars—for our in­vest­ments, spend­ing, et cetera. What­ever hap­pens, we just put money in these jars ev­ery time we earn. And we re­al­ized that, through this, we’re able to treat money as money. Nai­i­wasan namin mag-spend just for grat­i­fi­ca­tion.”

Mean­while, if you ever find your­self tempted to make an im­pul­sive pur­chase, step away from the item, walk around, and count to ten. “’Pag parang the ob­ject is call­ing your name, move away from it, and then walk around again. Count to ten, and then see if you still want to buy the item,” ad­vises Dr. Motilla. “When you move away from the ob­ject, it cuts you from the in­vi­ta­tion to pur­chase it. And it gives you an­other kind of neu­ronal con­nec­tion in the brain. In other words, it di­verts your at­ten­tion.”

Ap­ply these strate­gies and watch your­self make bet­ter choices for your fi­nances. And if it ever be­comes too chal­leng­ing, just re­mem­ber: Emo­tions are fleet­ing, but there are some de­ci­sions you’ll have to live with for­ever.

Shop­ping may make you happy tem­po­rar­ily, but it’s not a long-term so­lu­tion to your prob­lem.

Don’t make a de­ci­sion when you’re an­gry—it may have a neg­a­tive on your­fi­nances.

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