Saturday, June 23, 2007

Money and Emotions

Hello everyone.
Today's post was going to be about how to generate an alternative stream of income by writing for "Helium.com". However, because that post would be relatively straightforward and short, I've decided to write on a topic that has been swirling around in my head for a little bit of time.

Before I get into today's topic, which will be money and emotions, though, I'd like to tell you that if you go to www.helium.com, you can find out everything you need to about how to create an account and get paid for writing on any topic that you find interesting.

Now, onto money and emotions.

Ok, so I'm a big fan of Suze Orman. And one of the reasons that I'm such a big fan of hers is not because of any particular advice that she gives - Suze's a famous financial advisor who has her own television show on CNBC - but because she is one of the few prominent media personalities who acknowledges that all of our financial decisions are fraught with myriad emotions. The more literature that you read on investing and personal finance, the more you will hear the refrain that in order to be successful with money, one must remove all emotions. To some extent this is true. "Some" is the operative word however.

For instance, if you buy a stock just because you hear a lot about it on tv or on a hunch, without performing a "discounted cash flow analysis" - a process that allows you to determine what a stock's true value is based upon certain growth assumptions - then you are investing with emotions. This is bad. Similarly, if you sell stocks that you have long-term confidence in and that have good financial fundamentals, just because the price goes down for a few months or some media pundit says they're bad, you are also investing with emotion. In these instances, it pays to remove emotions from the equation.

But I believe that in almost every other instance regarding money, it pays to take your emotions into account. Why? I'll explain.

Americans have a ten ton elephant under the rug in their lives. No one wants to talk about money! It is considered taboo, disrespectful, and for most people, it's just downright awkward. In my family, as a child, all of my basic needs were provided for, but we definitely experienced times that were rough (i.e. being evicted from our apartment and having to live with relatives for two years). I could always sense that there was anxiety surrounding money. Some of you may have had experiences similar to mine. I believe that most of our ideas regarding money come from our parents and closest family members, like most of our world views.

So if your childhood was littered with arguments about money, you will most likely be tense when confronting the issue. If there was never enough to go around, you may feel the need to hoard and store up without considering the needs of others. (I struggle with this a lot.) Or you may shop compulsively to overcome that feeling of deprivation. If your parents were wealthy and always gave you what you wanted and you never had to work, you may be a spendthrift who doesn't know the value of a dollar. Or you may have learned the virtues of investing your hard earned dollars if you come from a wealthy family.

What our parents and closest family members communicated to us as children, both implicitly and explicitly, affects our money decisions considerably. I know that my respect for money comes from the fact that I used to always see my mom pick up pennies when she saw one in the street. To this day, I too never hesitate to bend and pick up pennies, nickels, dimes, and quarters that I see on the sidewalk. My mom also gave me and my siblings a biweekly allowance that we had to preserve until the next allowance period. Fortunately, I always managed to have money left over. This financial paradigm I adopted undoubtedly came from my mother.

If we can realize what beliefs and emotions we have tied up with our money, then we can take better control of our financial lives. We can control our impulses to buy those new jeans - when we already have plenty of them - if we understand where those impulses come from.

Make a vow to understand your own money psychology and take control of the financial reins in your life.

Thanks for reading and please feel free to comment or email me at jcp182000@yahoo.com with any questions. Until next time...

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