Emotional intelligence in finance – Learn how to use it to succeed

Emotional intelligence in finance, Financial Emotional Quotient/Intelligence or financial EQ is about understanding how we feel about money and why.

But to really know how to apply these strategies to your finances, it’s important that you know the definition of emotional intelligence by John D. Mayer and Peter Salovey:

“…the ability to perceive and express emotion, to assimilate it to thought, to understand and reason with it, and to know how to regulate it in oneself and in others.”

Today we’re going to find out more about emotional intelligence in finance and what you can do to develop this skill.

Emotional intelligence

Before including finances, you should know that emotional intelligence is a concept from psychology.

And according to the Ikigai philosophy, this is the skill responsible for a large part of your success and leadership capacity.

According to Salovey and Mayer, emotional intelligence can be divided into 4 domains.

Firstly, there is the perception of emotions.

This includes the skills involved in identifying feelings from stimuli.

For example, facial expressions and voice.

In other words, those with this type of intelligence are able to identify variations and change in another person’s emotional state.

And before we talk about emotional intelligence in finance, we should get to know the other 3 domains highlighted by Salovey and Mayer:

Use of emotions, which would be the ability to employ emotional information in order to facilitate thinking and reasoning.

Thirdly, those with emotional intelligence know how to understand emotions.

In other words, they have the ability to pick up on emotional variations that are not always obvious.

Finally, there is the control and transformation of emotion.

This is the best known and one of the most relevant because it is the ability to deal with one’s feelings wisely.

Therefore, the authors later updated the definition of what emotional intelligence is with the following sentence:

“Emotional intelligence involves the ability to accurately perceive, evaluate, and express emotions; the ability to access and/or generate feelings when they facilitate thinking; the ability to understand emotions and emotional knowledge; and the ability to regulate emotions to promote emotional intelligence and intellectual growth” (Mayer & Salovey, 1997).

What is emotional intelligence in finance? 

Now we can understand that a person who is able to understand what money really means to them emotionally has emotional intelligence.

To make the explanation simpler, think about the last financial decision you made before reading this article.

You might have bought a special outfit for the holidays or a present for a loved one.

Regardless of what your financial decision was, do you know exactly what you were feeling at the moment you made the transaction?

With emotional intelligence in finance, you understand that you make decisions emotionally before justifying them rationally.

For example, our beliefs about money are aligned with our feelings.

This becomes a cycle because, whether you’ve made a positive financial decision or not, you keep buying since the feeling is good.

As a result, you may insist on investing your money in an unnecessary product simply to feel good.

Emotional financial intelligence makes you change this belief about money, so that you understand that it is not an unlimited resource and that it doesn’t simply serve to satisfy your emotions.

This kind of intelligence shows you that you are in control and, although it can be scary at first, it can be liberating later on.

That’s why we’d like to make the following clear:

To develop emotional intelligence in finance, you must get to know emotional intelligence itself in greater depth.

In other words, it’s important to invest in your personal development, so that you not only develop intelligence in your finances, but also in other areas of your life.

Intellectual growth

Salovey and Mayer link emotional intelligence to intellectual growth.

Therefore, as well as knowing how to manage his emotions, an emotionally intelligent person is better able to deal with social issues.

Solving emotional problems probably requires less cognitive effort for this individual.

In social matters, they are more open and agreeable than others.

The person is unlikely to have an addiction or engage in problematic behavior.

In other words, by prioritizing intelligence in finance and personal development, you also learn to avoid self-destructive behavior.

Tips for emotional intelligence in finance

First, we should talk about financial self-awareness.

Personal development or self-knowledge is important at this point because we identify the emotional patterns that influence our financial decisions.

For example, a person without financial emotional intelligence constantly tries to run away from their problems.

In other words, it’s common for this person to avoid checking their bank account or even talking about money with friends and family.

This is because the person has financial anxiety and needs self-awareness.

As a result, it is possible to develop a healthier relationship with finances.

You need to know how much you have in your account and what your planned expenses are.

From there, a closer relationship is created with money, so that you know more about your spending habits.

In other words, at this first stage of emotional intelligence in finance, we identify the feelings that prevail in your financial life and how they impact your pocket.

In addition, it is essential to record all your expenses and earnings and plan them month by month.

That’s why it’s important to have financial control.

The main strategy here is to control impulsive consumption.

According to the study “Estimated prevalence of compulsive buying behavior in the United States“, compulsive buying is estimated to affect between 1.8% and 16% of the country’s adult population.

The study was carried out on 2,513 adults by telephone survey, and another relevant piece of information is that:

Compulsive buyers “were four times less likely to pay off their credit card balances in full”.

This indicates a lack of emotional intelligence when it comes to finances, because the bad habit of impulsively buying will lead to these people getting into debt in the future.

Don’t blame yourself, learn to control yourself

If you see yourself in these statistics and only regret it after you’ve bought it on impulse, understand the following:

There’s no point in blaming yourself now!

The smartest course of action right now would be to understand where your impulses come from in order to develop the ability to control them.

For example, it is common for people to buy on impulse when they are frustrated by some family or even financial problem.

Others decide to throw everything away because they have spent more than they should or buy to reward themselves for having done something good.

The point is that “shopping therapy” has the following results: lack of financial control and debt.

In other words, when you buy on impulse on a regular basis, you ruin your chances of achieving your financial goals.

So, in this case, we can’t consider that you have emotional intelligence in your finances.

So, instead of trying to fight an uncontrollable urge, avoid triggers.

Browsing e-commerce sites in times of boredom and cultivating the habit of window-shopping are some examples of triggers.

In this sense, we can move on to the next step, which would be self-regulation.

This is the ability to control financial impulses and make decisions based on long-term financial goals.

In self-regulation, you also learn to manage financial stress effectively.

In times of economic uncertainty or market fluctuations, it’s easy to give in to panic and make rash decisions that can damage our financial health. 

With self-regulation, you learn to stay calm in order to make a rational decision, despite being under pressure.

A new point of view on emotional intelligence in finance

You won’t be able to get rid of all the triggers, which is why you need self-regulation.

And the key to this would be to change your mindset about money.

If you think that your salary is only used to pay the bills and spend it on leisure, something is wrong.

Money is a resource that should be used to make your dreams come true!

It’s simple: by managing it correctly, you’re automatically prioritizing a certain purpose.

That’s why there must be a goal behind every penny.

Otherwise, you’ll spend your life not knowing where your money is going and complaining that you don’t have enough.

To get this new point of view and emotional intelligence on finances, invest in financial education.

Through this type of education, you understand the value of every penny you earn through your work.

You also begin to see the weight of your financial decisions.

The vast majority of elementary school teachers in the United States do not include financial education in their curriculum. 

As a result, only 12% of them teach personal finance to their students.

Another relevant finding is that 92% believe it should be included in the school curriculum, although they don’t feel confident about teaching it.

The information was obtained from a study carried out by PricewaterhouseCoopers.

All of the above statistics indicate that, unfortunately, most of us grow up without the necessary financial training.

For this reason, it is common for individuals not to worry about the future and to use credit irresponsibly.

The only way to escape this pattern would be to understand how interest works, investments and why it’s so important to spend less than you earn.

By mastering these basic financial concepts, you’ll know exactly how to control your impulses.

Start dreaming, living and have financial empathy

When we talk about emotional intelligence in finance, it’s common to think about the following:

You are investing in yourself and your dreams.

Therefore, you start to plan in detail your dream trips, what vehicle you want to buy in the future and when you would like to achieve financial independence.

The idea of dreaming for real indicates that you should make a specific plan.

Add inspirational videos, research, maps, itineraries, pictures.

Where you want to go, what food you want to try, how long you want to spend, how you want to go.

All of this allows you to be more organized, and even encourages you to keep a firm grip on your finances.

Some people like to create physical boards with references or use digital tools like Pinterest.

Regardless of how you prefer to do it, keep in mind that self-motivation is the ability to remain persistent and focused on long-term goals, even in the face of challenges and obstacles.

But we’d like you to understand that having emotional intelligence in finance goes further because it also includes financial empathy.

This means that before making a decision, you consider the financial needs of others.

This skill is especially relevant for a family or couple.

In other words, if an individual makes a bad financial decision, they are not the only ones affected.

Therefore, you learn to not only think about the family member, but also consider them.

In this way, you try to understand the other person’s point of view and you both make a joint decision.

As well as being extremely beneficial for finances, this strategy also contributes to a good relationship.

Beware of external influences on emotional intelligence in finances.

We’ve already talked about external influences that are related to triggers, i.e. an advertisement that grabs your attention and results in an impulse purchase.

However, it’s important to talk about another type of external influence: 

Opinions of people who are very close to you and pressure for consumption.

For example, you may have a friend who buys things to keep up appearances.

They buy various products and services to show that they have money.

Note that, unlike someone who has emotional intelligence in their finances and is focused on their goals, this person is focused on comparison.

Beware of this kind of external influence because, although it may seem subtle, it can actually affect you!

Surround yourself with people who have the same goals as you and who use their resources rationally and avoid waste. 

That way, you’ll know how to control your emotions and take good care of your money.

Daniel 2 de April de 2024