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Emotional Impact: 5 Ways Your Emotions Affect Your Finances

by Melissa Bell
3 minutes read

Many factors, such as your job, lifestyle, and family, can impact your financial decisions. However, few people realize that their emotional state can also affect how they spend, save, and make money.

Emotions can wreak havoc on financial planning, but awareness might put you in a strong position to make more informed financial choices.



Overconfidence can sometimes be dangerous when you’re making financial decisions. For example, rather than utilizing the services of a tax agent to handle their tax return for individuals, they attempt to manage this complex task on their own. While there is nothing wrong with doing your own taxes, it can be a recipe for disaster if you don’t fully understand how your country’s tax system works.

Overconfidence might also severely impact the investment decisions you make. If you’re optimistic rather than realistic about your investment choices, you might put your money in the wrong places and experience significant losses.


We sometimes wish we had what other people have, like new clothes and a nice car. With time, patience, and saving, you might be well on your way to buying the nice things you want and need.

However, envy can sometimes make people feel embarrassed about what they don’t have, and there’s potential for you to spend beyond your means to feel like you’re on par with your peers. While you might experience temporary joy and satisfaction at having expensive possessions, these emotion-driven choices can lead you into a deep hole of debt.

A Lack of Confidence

Too much confidence might cause you to make financial mistakes, but so can a lack of confidence. Some financial decisions, like buying a property, can seem risky and overwhelming, despite the fact that you can implement measures to mitigate those risks.

By not having confidence in yourself and instead being anxious about money and your financial situation, you might hesitate to make decisions that put you in a better position. For example, you could be well positioned to buy a home, but the idea of owing the bank money injects an unspeakable fear into your mind. If that fear of debt stops you from taking a step toward homeownership, your future prosperity may suffer.


Studies have found that sadness can make people narrow-minded and impatient regarding financial decisions. Rather than spending or saving their money to allow for long-term gains, they favor immediate gratification because it momentarily takes care of their sadness.

For example, you might want to spend your last $5 on chocolate, providing you with immediate satisfaction, but that $5 might serve a better purpose if put toward your rent, mortgage, or savings account.


When you’re happy and living in the moment, it’s easy to whip out your wallet and buy things that continue to bring you joy. You might even buy items for people you love to bring them joy. There’s nothing wrong with treating yourself and others, but regret might set in once you see your bank balance.

For a time, feelings of happiness can stop you from thinking about your obligations and debts. Of course, you don’t have to let your financial situation consume your life and prevent you from feeling happy. However, you should take care not to let your good mood tempt you into wild and irresponsible purchases.

The next time you make a purchase, think about how you’re feeling. As much as you believe your emotional state doesn’t affect your spending habits, it just might. By factoring in your mood while shopping, you might just stop yourself from buying something you don’t need.

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