financial therapy

What is Financial Therapy?

Welcome back to Financial Therapy. Over the past 30 years, Rick’s weekly column called “Financial Awakenings” has appeared in a variety of publications. During this time, it has covered a range of personal finance topics, with an increasing focus on the emotional aspects of making sound financial decisions. 

Personal Finances

Personal finances cover a broad range of ideas, ranging from basic household budgeting to investing for the future, to constructing complex trusts or asset protection plans.

It is important to understand how Financial Therapy is going to connect the financial and emotional sides around each point.

For example, if you go in to see a financial planner and want to make decisions on rolling over your 401(k), your financial planner can give you information and you’re ready to act on it. You may feel some excitement when you get the information, and it’s done. However, if the financial planner brings up something else that maybe they see or something

that you weren’t expecting, you may have different reactions to that.

Let’s dig in deeper. Perhaps you don’t have a will and your financial planner brings that to your attention. You may immediately have feelings of shame for not having a will or feelings of resistance as to why you don’t have a will. We can sometimes get into a place where we’re not ready to take action, and we get a lot of difficult emotions operating, which can often stop us from making good financial decisions for ourselves.

You may be surprised to hear that not everybody should have a will. However, if you are someone who should have a will, it is important to knock down those emotional blocks—possibly with the help of Financial Therapy—and take action, which can help prevent a lot of heartache and turmoil upon death.

How to Look at Emotions or Reactions More Positively

Emotions or reactions can sometimes be sabotaging or keeping you from doing something that is in your best interest. A common example is overspending. Financial advisors often work with clients to look into their spending habits. We review what they need to be saving and determine how to lower or eliminate unnecessary spending. This is intended to help them start building savings to help hit their retirement goals.

Except that, sometimes, when the client comes back several months later, nothing has changed. They have not reduced their spending or begun to build up savings. In the past, as a financial planner, I would have redirected their attention to a cash flow chart or tried in other ways to show them logically that failing to change their behaviors made no financial sense.

As another example, financial planners commonly ask clients about their goals and objectives, such as buying a house, saving for their kid’s education, or planning for retirement. If you have trouble defining goals or taking steps to achieve them, one possibility to consider is that the goals you feel you “should” have are not really goals that are important to you.

In instances like these, someone’s inability to change their behavior is not because they cognitively don’t know what to do. It’s because of an emotional impasse.

A fundamental aspect of dealing with money and emotions is realizing that every financial behavior, no matter how illogical it seems, makes perfect sense when we understand the underlying beliefs. The key to understanding our illogical financial behaviors is to find out what we really believe. When we acknowledge what we really think, feel, and believe, it becomes crystal clear why we haven’t taken action.

Sometimes, emotional trauma prevents us from acting on improving our financial situation. This type of trauma can form deep reactions and beliefs that cause complex issues around money. This is where Financial Therapy can make a life-changing difference.

Financial Therapy helps people with both finances and emotions around finances. The more we can understand what’s going on internally and work through those parts of us, the more able we will be to start making better financial decisions for ourselves.

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