Psychology of Money and Earning: How Emotions Affect Choices

Money and financial stability are constant factors in our lives, drastically affected by our state of mind. After a long day, we might splurge on new products to lift us, but we might feel guilty afterward. So, our emotions impact our financial decisions and frequently overshadow reason. 

The same applies to fear, which prevents us from pursuing personal projects at the risk of losing our investment. Understanding the relationship between our feelings and financial behavior is crucial to recognizing harmful tendencies. 

Identifying your relationship with finances 

We tend to regard people with money as “good” or “bad.” However, a significant part of our relationship with money stems from our childhood and the values passed onto us. 

For example, even the same family situation, such as living in a modest-income family, can affect a person differently:

• One can grow into an adult who struggles to spend a lot (even for necessities) and is constantly saving. 
• The opposite effect is that a person spends a lot as compensation for their past. 

Each person should aim to analyze the reasons for their approach to spending and their finances. Recognizing the causes of different behaviors can also lead to potential solutions.

Emotion-driven approaches to money 

Understanding how our emotions and past can shape our current approach to money might be challenging. Here are some particular behaviors that individuals tend to showcase: 

Impulse or comfort shopping 

Positive and negative emotions can trigger instant gratification spending. After a challenging or particularly pleasant day, we feel the urge to reward ourselves. While this is not always detrimental, it can lead to unsustainable financial habits. Thus, it’s crucial to identify such moments of emotional spending and replace them with other feel-good activities. 

Overconfidence effect 

Feeling overly confident in one’s abilities might not always be a negative trait. However, in terms of your relationship with money, it can lead to multiple questionable decisions. For one, people might be more willing to take risks, accept suspicious deals, or invest large sums of money. In addition to this, individuals might drastically underestimate their expenses. 

A healthier approach to apply is to replace impulsive enthusiasm with research and discipline. Before investing or making important financial decisions, try to reflect and reassess. 

Fear of losing

Not having enough confidence in one’s abilities can also hinder one’s relationship with money. It can lead to becoming an overly cautious saver (even for things you genuinely need). 

Furthermore, fear can prevent people from taking risks or investing in themselves. It could relate to people not valuing their expertise and being reluctant to ask for a well-deserved salary increase. 

However, it also relates to not recognizing your potential and restricting yourself. For instance, people dreaming of starting side hustles can put themselves down because they are terrified of losing their investments. And, of course, not everything can work out as intended, but choosing not to pursue aspirations due to fear of losing is no way to thrive. 

The first step to improving can be trying different extra income streams that won’t require much. It could be freelancing, testing products, sharing unused internet bandwidth, answering surveys, or tutoring. 

Healthier approach to money

The solution to any problem begins with recognizing the source of patterns and behavior. In this case, it means identifying when emotions attempt to take over, like the effects of a bad day or an opportunity that sounds incredibly profitable on paper. Try to fight the initial response, be it the urge to do something or the opposite, to stop yourself due to fear. 

Conclusion 

A healthier management of income and money doesn’t happen overnight. Yet, you can make better financial decisions by setting achievable goals, identifying emotional triggers, and improving your emotional habits.

Reviewed and edited by Albert Fang.

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Article Title: Psychology of Money and Earning: How Emotions Affect Choices

https://fangwallet.com/2025/02/25/psychology-of-money-and-earning-how-emotions-affect-choices/

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