Money & Emotion: A Match Made In Hell

Why Money Is Emotion Driven And How To Change It

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Good morning and happy Memorial Day.

I want to take a moment to acknowledge the men and women who made the ultimate sacrifice. Our country is far from perfect, but I’m confident that our endless freedom and access to opportunity make this one of the best places in the world to live. I’m incredibly grateful for that.

Dan Rather wrote a wonderful essay on Memorial Day that embodies the weight of the day. If you’re interested, you can read that here.

Money & Emotion

Today I’d like to talk about our emotions, why they play such a big role in our finances, and how to combat those emotions.

This last week I’ve been pondering why money is such an emotional object. It’s not a person. It doesn’t have feelings, yet we tiptoe around it offer it the ultimate protection. If you’re new to personal finance or investing, pay attention and I guarantee you’ll find yourself in situations that have you uncomfortable, angry, or maybe scared.

While it may not be a living thing, money is one of the most personal things we have. It’s our source of living. It’s how we pay our bills and pay for ways to have fun. It’s also, in a traditional sense, a reflection of how hard we work. No wonder it’s personal - our lives revolve around it!

The problem with this way of thinking is that money is dictating the terms of the relationship. If you ever have been or currently in some form of debt, your money is dictating the terms of your relationship with it. This also applies if you ignore your finances - money is still running the show.

Mastering personal finance, and to another extent investing, is about coming to understand yourself and redefining your relationship with money. Money is a tool that should be used to accomplish your goals. That could be starting a business, retiring early, paying for a kid’s education, or buying a home. When you don’t set the terms of what your money is used for, you’re losing.

If You’ve Got A Weakness, Money Will Find It

I’m a regular listener of the Animal Spirits podcast hosted by Michael Batnick and Ben Carlson. If you’re interested in markets and have some technical savvy, I’d highly recommend it. Anyway, one of the hosts of the show said something the other day that really struck me. Summarized he said that investing finds a way to exploit every cognitive bias you have.

What he means by this is that when you learn to invest, you will undoubtedly make mistakes that are a direct result of who you are as a person. These mistakes can stem from biases (here’s a great article on 7 cognitive biases) or even direct personal experience. Where you work, who you talk to, content you consume all influence how you make decisions not only with investing as he mentioned but in personal finance as well.

Here’s an example. Have you ever had a credit card payment due and consciously thought you need to pay the entire thing off or perhaps a larger than the minimum payment. That same day someone invites you out to a nice dinner or something unexpected happens that will require money. Rather than pay the larger amount, you say “Next payment I’ll pay double” or “After dinner whatever I don’t spend I’ll put towards my card”. This has happened to me thousands of times and you never make the extra payment.

We are short-term thinkers and have a difficult time delaying gratification. Getting out of debt and being diligent with money is uncomfortable and is difficult. It makes you feel a certain way. That difficulty is you digesting old habits and forming new ones.

A Personal Story

While I know everyone has felt those pains in personal finance, maybe not everyone has felt that from an investing standpoint so I’ll take a walk down memory lane for you. I’ve been investing in individual stocks since 2017 with a small amount of personal money as well as my retirement savings from the military. I figured the best way to learn to manage money would be to handle my own first.

Listening to professional money managers or investors talk, you consistently hear about major drawdowns in the market. The dot com period in 99-2000 and 08-2009 are popular but there are many others. They reference these to show that they survived that period but also speak of them as tests. And tests they are.

I got my first taste of a major drawdown last March. Over the course of four weeks, I watched the value of my retirement account drop by 50%. While not a material amount of money, it was my entire life savings essentially. When I say I was under stress I wouldn’t even be scratching the surface.

It was a multimonth period of many sleepless nights and constant anxiety over fear of loss. I spent every day glued to my phone and computer screen, watching for news updates as news of COVID sparked fear in the markets and sent nearly every stock in the market down by double-digit percents.

I was worried - I didn’t know if my holdings would ever come back. It’s difficult to describe the worry I felt during that time but I can confidently say it was the most scared and uncomfortable I’ve been in my adult life.

My time spent learning about investing reminded me of one thing - do not sell. I didn’t have cash sitting on the sidelines to buy more of things I thought were cheap - hell even if I did I probably wouldn’t have. I was scared, but I didn’t sell. I just sat and waited. Since then every stock price has rebounded and then some.

When in doubt, zoom out.

What Ever Shall We Do?

No matter how hard you try, there will be times that test you both in personal finance and investing. They’re unavoidable. There’s only one thing you can do to confront those times and that’s to have a plan and stick to it no matter what.

A plan looks different to everyone but the idea is to develop principles and rules for your finances that are reasonable, that support your personal goals, and that you can stick to over time. With your finances maybe it’s saving 10% of every paycheck or using cash to make purchases. It matters less what the rules are but more that you have them and begin acting on them consistently. Consistency will breed a habit that you will stick to, even when things are hard.

In investing, it’s just as important to have rules. I believe the most important is to know why you own something. A stock may drop significantly overnight for no reason at all. Not knowing why you own it will tempt you to sell because of your lack of confidence and conviction in the companies you own. I wouldn’t say I had the confidence and conviction in every company I owned last March, but when things rebounded you better believe that was the first thing I looked to do.


Once you have your rules and principles established, it’s time to execute.

• Set up automatic withdrawal - If you’re committing to saving a percent of your paycheck, set up money to be withdrawn to a savings account the day you get paid. Pay yourself first!

Personally, I set my savings fund up in an online bank. If I want that money it’ll take me 3-5 days to have that in my checking account. I’m never tempted to use it because one I don’t see it and two know the money won’t be there in time for when I need it anyway. Make it difficult for yourself to access savings

• Enable auto-pay - Don’t give yourself the chance to miss a payment or pick and choose what gets paid. Automatic payments prevent errors and will force you to work around that schedule.

• Keep an investing journal - If you want to buy a stock, write down why you want to own it. There will be a point in the future when the price drops significantly. When this happens, you can come back to this note. If the note doesn’t remind you of your confidence in the business, you probably shouldn’t own it at all.

Make things automatic and easy on yourself. Your future self is weak - you may be okay on money right now but you might not in a few months. You may be confident in your stock holdings at all-time highs but not in the next correction.

Putting systems in place to prevent future weakness in investing and personal finance decouples money and emotion and puts you in charge of the relationship. This leads to stronger savings, personal financial management, and investing returns.

Talk next week