Money is complicated. There is no way around it. Yes, the math side can be complex, but not nearly as complex as our own emotional relationship with money. How else do you explain knowing what you should do, but not actually doing it?

In this article, we will explore the mindset you should develop to have a healthy relationship with money and make progress with your money goals.

The M&M of money: Math & Mindset

There are two sides to money: the math and the mindset, or as I call them, the M&M of money. The math side tells us whether the numbers will work out. The other side details our relationship with money and how our psychology can sabotage that math with poor behavior.

To get a little more insight, let’s go back in time a bit: In 2002 Daniel Kahneman won the Nobel Prize in economics for his study that showed that when we make financial decisions, those decisions are based 90% in emotion and only 10% in logic or reason.

This research transformed decades of economic theory that stated that humans are rational and will act in their own best interest at any given point. It’s important to note, Kahneman’s new research didn’t defy the prevailing theory, instead, it shifted its focus.

In other words, we still act rationally based on our perception of reality, but our own emotions often warp our perception of reality. Therefore, ‘best interest’ changes from objective and calculable to subjective and emotional.

It’s a massive shift in focus! It stands to reason that even when we know what we should do, we often don’t do it. It’s because to us, it’s not in our’ best interest’ or, said differently, It won’t help us feel happy.

Happiness and Guilt

That is the goal anyway, isn’t it? To feel happy in life? And the way we are wired to find what makes us happy is by observing others. We know what we see all around us: people with money are happy. This is a message that is continuously sent. We see it on Instagram. We see it on blogs. We see it in the news. We see it in ads. We see it in movies.

We see people becoming happy because they got the newest car with the latest tech, or traveled to that exotic beach paradise, or got that cosmetic procedure done, or drank that latte. We want to feel the way that they do. Our minds then rationalize that getting or doing those things will result in happiness. That is the equation that was fed to us.

So we buy that new car, take that beach vacation, get that procedure, and drink that latte. And you know what? We enjoy it! We actually do feel happy once those things happen for us.

Eventually, however, that feeling inevitably wears off. We are left in the emotional low after the high. And so we rationally think, if we had more of that thing, we would feel happy again.

This feedback prompts us to look for the next purchase we can make that will help us feel happy and so the cycle continues. In order to maintain the happiness, we need more and more money to spend.

Take note of this essential clarification: none of these examples demonstrate inherently bad or irresponsible ways to spend money, but you probably feel that anyway. The reason why you feel that is because of the other emotion that often emerges just as happiness wears off: guilt. You and I have both felt it. It’s awful. Guilt wears down on us. This is part of what prompts us to reach for that ‘next thing’ we can buy so that we can feel a hit of happiness again and drown out the guilt.

Why do we feel guilty in our pursuit of happiness? Usually, it comes as a result of acting in a way that is contrary to how we feel we should act. We should be paying down our debt. We should be saving for retirement. We should be saving for our kids’ college expenses. We should be…[fill in the blank].

When we don’t do what we should do, we feel guilt. It means we are irresponsible, and nobody wants to feel irresponsible. It’s uncomfortable.

What’s worse is that we often can’t define what we should be doing. How much should we be paying on our debt? How much should we be saving for retirement? How much should we be saving for our kids’ college expenses?

Those are heavy questions. That’s a big part of the problem. If we can’t define what we should be doing, then how are we ever supposed to actually do it? So instead, we brush it away by spending more and getting our happiness high again. It’s like a hamster in his wheel or the dog chasing its tail. It will never end.

The Solution

The only way to win against this vicious cycle is to face it head-on. You have to deal with it directly and spend concerted energy on two things:

  1. Getting clear on what you should be doing with your money
  2. Becoming aware of your emotions 

For the first, you need to make sure that you have a financial plan. That may seem like a scary or even overwhelming thing, but it’s not. In fact, in about 5 minutes, Savology can give you a full report card on your financial health and suggestions for improving it. It is that easy.

Once you know the math and implement a plan to make it work, then you have confidence that you are doing what you should be doing. It removes the guilt knowing that you are being responsible about your future and frees you to spend money in the present on the things that make you happy.

For the second, you should answer the following questions for yourself:

  1. What lessons did I learn about money growing up? How do they affect me now?
  2. When I think about money, I feel __________. Why do I feel that way?
  3. What emotions are holding me back from acting on sound financial advice?

Answering those questions will be key to you decoding your mindset about money. You don’t need to get rid of those feelings or beliefs about money, just become aware of them.

Once you do, you will be able to make more rational decisions. You will be able to align your spending with what is most important to you in life, now and in the future.


Your financial future starts today

Savology is a free planning platform where you can build a free, unbiased, personalized financial plan in about 5 minutes. Your Savology plan will give you action items to start working on as well as an overview of your current financial situation. After you have made some progress, Savology can connect you with some of the world’s top providers to help you accomplish your financial goals.