Struggling to save? Your emotions could be holding you back

When I was younger, I thought financial success was largely to do with financial know-how.

I had worked for a not-for-profit with people experiencing financial difficulties and seen that many of them struggled to understand their finances. Many didn’t know what constituted an asset, or how insurance within superannuation worked, or the basics about investing.

If you feel like your experience with money is lacking, it might be time to look inside.Credit: Simon Letch

It seemed to me this was largely a problem of lack of financial knowledge and practical skills – how to save, invest, manage your finances, select financial products and so on.

I assumed that with better financial know-how, people would make better financial decisions. Those who know better, do better, right?

There was some truth to this. Having now taught countless people the practical financial skills to save, invest and manage their money, I’ve seen firsthand the huge impact of financial education. However, I pretty quickly noticed that practical financial skills were not enough.

I saw many who knew better, but didn’t do better. Many are stuck in patterns they couldn’t break, despite being armed with the best financial advice. Some got better, quicker results than others, despite being equipped with the same practical skills and know-how.

It was clear to me that there is more than financial “know-how” at play.

The role of emotional intelligence

The piece that most traditional financial conversations neglect is the significant role that emotional intelligence plays in our financial decisions, and therefore financial outcomes.

This is supported by research. In the Dunedin study, psychologists tracked the lives of 1000 children from New Zealand since 1972 and found that self-control in children (which encompasses skills like delaying gratification, regulating emotions and resisting impulsive behaviours) is a strong predictor of success in adult life – financial and otherwise.

Learning to identify, process and regulate your emotions will improve the quality of your financial decisions

In my work helping people to create lasting change in their financial lives, I’ve seen the same. The “hard” skills – like knowing how to invest, setting up the right savings system, understanding financial jargon – are important.

However, financial skills on their own won’t help you create and sustain financial growth, without strong emotional skills.

If financial skills alone were enough, everyone would read and implement one finance book and be on their way to becoming a millionaire. Everyone who drew up a budget would be able to stick to one without issue. But we know that isn’t how it goes.

Are your emotional skills holding you back?

Here are some signs it might be your emotional skills, not your financial skills, that need work:

• You know what you should do, but aren’t doing it. You know you should invest, fix your super and so on, but can’t bring yourself to do it. You get weighed down by negative emotion – overwhelm, dread, anxiety, fear, stress, perfectionism – that stops you from taking action.
• Your feelings don’t match, or are tied to, your bank balance. You have money – maybe a good chunk in savings, some in investments, maybe even a home. But somehow, no matter how much more you get, you don’t feel the confidence, security, enjoyment you thought money would bring you. Or alternatively, your emotions and self-worth are tied to your bank balance, so you feel good when it’s up and bad when it’s down, keeping you on a perpetual rollercoaster.
• You have strong emotional reactions to money. You feel guilty every time you spend money. You feel insecure around people who have more than you. You feel scared at the mere idea of exposing your money to risk. You feel ashamed by past financial mistakes. These emotions weigh you down and impact your financial decisions and behaviours.
• You have financial patterns that you can’t seem to break. You’re trying hard, but it feels like something always sabotages your progress and you can’t break the cycle. You do your due diligence but always end up regretting the professional, service or product you signed up for.

Doesn’t everyone have an emotional response to money? Yes, but the difference lies in how you respond. If the market dips, you can panic and sell, or you can stay calm and stick to your plan.

If you’ve made financial mistakes in the past, you can let it shake your confidence, or take it as an opportunity to learn and grow. If there’s an opportunity in front of you, you can hesitate and take months to decide, or you can have the self-trust to go all in and take confident action.

Learning to identify, process and regulate your emotions will improve the quality of your financial decisions which will inevitably lead to better results, more ease and faster growth because you won’t be weighed down by emotional baggage.

The good news is – such emotional skills are teachable. What’s more is that learning them won’t just improve your finances, it’ll improve every other area of your life as well.

Paridhi Jain is founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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