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Best
Financial Decisions are Made with Our Heads and Our Hearts |
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Do you
have what it takes to make good decisions with your money? One would think that this would be an easy
question to answer. But on more
careful examination, we see that people who are brain smart about money often
make less than optimal financial choices.
Why is that? It is not
just what we know in our heads about money but what we believe in our hearts
that can lead to financial mistakes.
Many times we are not even aware of deep seeded hidden beliefs that
can cause us great financial harm. Rick Kahler, CFP co-author of the book, Conscious Finance: Uncover Your Hidden Money Beliefs and Transform
the Role of Money in Your Life, addresses both head and heart related
considerations of our decision-making process. He refers to our knowledge of money as exterior finance and to our beliefs
about money as interior finance. Exterior finance is what we can see or
touch – checkbook balances, retirement accounts, insurance policies. Interior finance is what we can not see –
our emotions, beliefs and values about money along how we process messages
about money. Exterior finance is
cognitive, left-brain and interior is emotional, right brain. “Whether we realize it or not – and most of
us do not – our financial decisions are based at least as much on emotion as
they are logic,” according to Kahler. As such, we
need to discover our hidden beliefs on money as a first step in integrating
our emotions with logic to make the more effective financial decisions. If you do
not think this is relevant to you, Kahler gives you
these test questions. Do
you: Fight with your spouse about
money? Feel overwhelmed by debt? Worry that you will never have enough
money? Think having more money is the
answer? Feel guilty about having money? Frequently overspend and hate yourself for
it? Have trouble saving for your
future? Depend on others for money? Feel compelled to give others money? Make the same money mistakes over and
over? If you
answer yes to some of these questions, the cause is likely that some of your
hidden beliefs lead to defective decision making. Once we become aware of our hidden beliefs
and how those beliefs impact our decisions about money, we will be better
equipped to avoid painful mistakes. Another
name for the beliefs we hold relative to money is money scripts. Coined by
Dr. Ted Klontz, a therapist and co-author of The Financial Wisdom of Ebenezer Scrooge,
money scripts are the set of instructions we formed as children when we
received direct and indirect messages about money. Like an actor, we automatically deliver
lines from our script when faced with money decisions throughout our
lives. For
example, observing parents fighting over money writes the script that money
is a source of conflict. Seeing parents
worrying and constantly commenting over paying bills and not having enough
money likely leads children to develop a fear script that says there will
never be enough money for their needs.
Another source of messages leading to money scripts is from outside of
our families. Religion, schools,
social groups and especially main stream media all deliver messages such as
money is evil, don’t go into debt for any reason, don’t trust anyone with
your money, and to gain happiness by buying more stuff. Effective
financial decision making requires the integration of interior and exterior
finance. The first step toward
integration is becoming aware of our money scripts. Kahler’s book
provides exercises to identify a number of them and offers effective coping
techniques for each. The book also
deals with exterior finance (the mechanics and logical rules of money) and
provides the roadmap for integrating interior and exterior finance to help
you make better financial decisions. Mike Haubrich is president of Financial Service Group, a
registered investment advisory firm in |