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Money Wellness and Emotional Life

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of first direct. 

Dr Ash Ranpura

Time to read:
8 minutes 

Your financial decisions may feel fairly rational, and with enough spreadsheets and PowerPoints they may even look fairly rational, but decision-making in the brain is a fundamentally emotional process. While this may seem like a weakness at first glance, it can become a strength. The brain's emotional cognition system is a highly tuned, efficient engine, far more powerful than rational thought. If we can understand how emotions drive our behaviours, and if we can put some basic guide rails in place to keep us on track, we can use that powerful engine to reach our financial goals. After a year of instability and uncertainty, we can't afford to wait any longer.



Financial decision-making is supposed to be a pretty rational process. You weigh up the pros, weigh up the cons, tot up the columns, move the decimal point, carry the one... and somehow this all leads you to make the right choices.

But of course, that's not what actually happens. Decision-making in general, and financial decision-making in particular, is a fundamentally emotional process. First you have a feeling, then your brain goes into overdrive trying to dress that feeling up in reason. Ever buy a really expensive pair of shoes which you thought would change your life, let you run like an Olympian, climb Everest, jump like a pro basketball player, only to realise about a year later that they're just some old trainers? If so, you know what I'm talking about.

Since emotions drive our behaviour, understanding how we make financial decisions first requires understanding how we feel about money. Did you grow up in a household where money was discussed openly, or was it a dirty word, best left unmentioned? When you think about your finances now, do you feel at ease or do you feel tense? Since emotional states create body states, maybe you notice that emotional tension can create physical tension in the body - tight muscles, disrupted sleep, and ultimately headaches and digestive problems. Learning to notice these emotional states, and the body states that go with them, can really help you understand how you make financial decisions.

Now, you're probably thinking that while this emotional/body-based stuff might affect decision-making in your average simpleton, it doesn't affect the financially-literate. People who know about money think with their heads, right? Wrong. In a landmark 2016 study, scientists from the University of Cambridge and the University of Sussex showed that even in elite City traders, body awareness is tightly linked to financial performance. The research team asked high-frequency hedge-fund traders to count the number of times their hearts beat in a given interval, using only their ability to feel the heart within the chest. They found that the better a trader was at heart beat detection, the more money they made on the trading floor. Even at this elite financial level, where we would presume reason and analysis dominate, skills like bodily and emotional awareness seem to be good predictors of decision-making.

Once we've figured out where we are at emotionally in relation to our finances, we need to decide where we want to go. We all know we don't need money for money's sake. At best, having £20 means you have a piece of paper with a nice portrait of the Queen on it. At worst, it means you get to look at a small black-and-white number on a bank statement. We're not interested in money itself; we're interested in how it affects our lives.

That may sound obvious, but it's shockingly easy to lose sight of this fact. We can get locked into a cycle of earning more and spending more and therefore needing to earn more, with no way of ever getting off the treadmill. Figuring out what really brings you fulfilment may sound like a strange way to make a financial plan, but it's crucial that you know where you're going before you start driving. Ultimately, this mean making financial decisions in terms of what you value instead of in terms of money.

There are two practical ramifications of this philosophy. The first is that small extras probably cost you more than you think. Saving £3 per day, for example, would give you £1,095 extra at the end of a year. While there's not much I could do for £3 a day that would bring me value, I can think of a lot of ways to spend £1,095 once a year – ways that would be wonderful and memorable.

The second implication of the value philosophy is that big luxuries probably cost you less than you think. If you think about an expense that would really add value to your life, instead of just looking at the price up front it's better to consider the long-term cost. My father bought a beautiful leather coat in the early 1960s. At the time he considered it an extravagant expense. But because it was so expensive for him, he treasured that coat and looked after it lovingly for nearly 30 years – at which point his annoying son took a fancy to it and carted it off to university. Two decades later, I still love wearing it. Whatever my father spent, it was a bargain.

Similarly, while the mobile phone I bought three years ago for a shocking amount of money can hardly be given away today, I have never regretted money spent travelling to see a friend or on a special dinner with loved ones. Making financial decisions based on value instead of on price helps keep your financial life on track.

Ok, we now have a plan to figure out where we are at financially, at least on an emotional level. We can start to use our values to determine where we want to go. But if we've learned nothing else in 2020, it is that the world can change in an instant, scuppering the best laid schemes of mice and men. Jobs can disappear or become radically redefined, schools can close, and the world order can be reshuffled overnight. What strategies can we use for feeling safe in an unstable world?

The first strategy is a very simple one, and it's just to have a plan in place to respond to an ordinary crisis. By "ordinary crisis" I mean things that happen fairly frequently in general, but not that often to any individual person. For example, your car unexpectedly breaks down and you need alternative transportation. You lose your eyeglasses, your mobile phone or your laptop and need an immediate replacement. Your boiler could shuffle off its mechanical coil. You could break your leg and be off work for six weeks. In any of these cases you'd need to be able to put your hands on a chunk of cash very quickly.

If you're looking at that list and wondering how on earth you'd find several thousand pounds in a pinch, you're not alone. Study after study* has shown that nearly half of us wouldn't be able to come up enough cash to deal with an ordinary crisis. That represents a significant hidden source of anxiety and uncertainty – and that's on top of all the stuff we can't control. But with a little plan in place we can reduce that anxiety significantly. Remember that £3 a day, or £1,095 a year? That would make quite a nice cushion when an unexpected bill comes your way. And if you can't afford to put away that much, start with less. Any bit of cushioning can help to give you a feeling of security and safety when things get tough.

Once you have an emergency fund in place, the second strategy is a lot easier. Just talk about your financial life with someone. This can be a family member, a friend, or even a financial advisor. The goal here is not to do anything with your money at first. You're not going to create a retirement plan or buy life insurance. You're just going to articulate your feelings about money. As circumstances change and the world becomes less predictable, it is very helpful to state your values and your anxieties out loud. It's more about listening to yourself than it is about getting advice.


* e.g. Bankrate's "Financial Security Index" survey, January 2020, Lending Tree survey, 19 Dec 2018, "Over 50% of Americans Can’t Cover a $1,000 Emergency With Savings," and US Federal Reserve "Report on the Economic Well-Being of U.S. Households" 2018.


As we head into 2021, we face more instability than most of us have experienced in our lifetimes. Typically we respond to uncertainty and change like any threatened animal – with a fight-or-flight response, either aggressively overspending and ignoring the consequences, or retreating and hunkering down. But it is possible to achieve a feeling of ease and comfort, even in trying times. An honest emotional assessment of our feelings around money, putting some simple plans in place, and starting some open conversations about money, can put us back in touch with our core values. That will bring us to a place of real money wellness, whatever else is going on in the world.