“It’s not about the money.” This saying has become almost a cliché among financial planners and therapists who help clients address the emotional aspects of their relationships with money.

We keep using this phrase because it is so true. Overspending, taking unreasonable risks, money conflicts that strain marriages, failing to learn from money mistakes, and a host of other problematic money patterns are not about money. They are about emotions. And since brain researchers tell us that 90% of all decisions are made emotionally, it literally “pays” to pay attention to your emotions. Continue Reading »

Anyone who sent a check to the IRS this month certainly doesn’t need to be convinced that there is a relationship between money and feelings.  I can personally attest that paying a hefty tax brings up a great deal of painful emotion.

The case for the union of money and psychology is overwhelming.  Almost everyone experiences fear, sadness, grief, anger, or happiness around money events.  Large life events like divorce, death, bankruptcy, losing a job, and selling a home clearly involve money and evoke emotions.

We may be less likely to notice the psychological aspects of smaller money events.  Yet even acts like paying monthly bills, buying birthday gifts, or shopping for groceries have an emotional component.

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Why do 70% of Americans live month to month and 91% don’t have more than $100,000 saved for retirement?  The answer is fairly simple, we don’t really understand how to create wealth.  Oh, we think we understand how to create wealth.  We think all we need to do is save more, spend less, and not do anything really crazy.  In many ways, most Americans think correctly about money.  The problem is in how we feel about money, which is to say we often don’t or aren’t aware of how we feel.

Building wealth is not about your IQ, it’s about your EI, that is your emotional intelligence.  Author Dan Goleman in his book, The Emotionally Intelligent Workplace says that IE trumps IQ when it comes to job performance.  The most successful CEO’s score high in EI.

Our years of research and working with the blending of EI and finances finds that people with high EI also make better money decisions. Making good money decisions is a 21st century survival skill. Continue Reading »

BYOB–or not.

Sorry, I’m not inviting you to a “bring your own beverage” party. I’m warning you away from a get-rich scheme called “Be Your Own Banker.”

This idea has floated around the Internet and late-night television for a while now. One of the latest versions is touted on a website that I’m not going to name because I don’t want anyone getting sucked into what is essentially one step from being a scam.

Once you drill down past the initial layers of ambiguity, the basic concept seems simple enough. You buy a large whole-life insurance policy. After you pay into it for several years, it will accumulate a cash value. Then, any time you make a major purchase like a new car, you can borrow against your insurance policy instead of going to a bank.

According to the people selling this concept, you are the big winner here because you’re paying interest to yourself, not the bank.

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What is capitalism? How does it work? For some time now I’ve been meaning to write a column on that topic, but it has seemed to be a daunting task more fit for an economist than a financial planner.

Then I remembered this story from my childhood.

One summer, we were visiting my grandparents. I was about ten and my brother was seven. Our grandfather hired us to weed his garden, paying us a dime apiece.

That seems like a paltry sum, but it wasn’t such a bad wage for a couple of kids at the time. After all, a bottle of soda only cost a nickel.

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“Shop locally.” “Eat locally.” Do a quick Internet search for either of these terms and you get a host of results. Plenty of people are interested in saving energy and supporting locally-owned businesses by doing their buying close to home.

So many people are committed to eating locally grown food that there’s even a name for them: locavores. Being a locavore in South Dakota in the wintertime, by the way, can be a challenge.

If buying locally matters to you, here’s another aspect of it to think about: giving locally.

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So the economic train is speeding faster and faster, and the edge of the fiscal cliff is getting closer and closer, and the passengers are starting to scream. Meanwhile, the guys in the cab of the engine are arguing about whether to hit the brakes or blow the whistle.

What’s the best thing for an investor to do? Nothing.

Based on my emails this week from clients and readers of my column, there seems to be widespread concern among investors that we’re on the verge of panic and the markets are about to head south.

It reminds me of the good old days, back in the fall of 2008, when the markets were dropping 900 points a day. I’m sensing that the fear among investors about going over the fiscal cliff is similar to the fear of four years ago. The only difference is that the markets aren’t falling today.

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“What are your ‘Money Scripts’?” The Wall Street Journal asks this question in an article by Thomas Coyle published in the December 9 online issue. Coyle based much of the piece on interviews with Rick and with therapist Dave Jetson, who offers financial therapy to KFG clients.

Read the complete article here.

As a young adult, what could you spend money on that would be a wise investment in your financial future? A home? A college education? A money management class?

All of these may be good ideas, but there’s something else you can buy that could make an even greater difference in your long-term financial health: counseling.

What does psychological counseling have to do with money? Sometimes, a lot. I was recently interviewed by a reporter for an article about money disorders. The conversation reminded me just how many problems can result from dysfunctional money beliefs and behaviors. Money disorders can impair people’s functioning and disrupt their lives just as significantly as disorders like alcoholism or other addictions.

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Last week my husband and I hired a painter to put a fresh coat of paint on our hundred year old home. True to form, my husband negotiated a good deal and got the contractor down $600. When he told me he saved this amount of money, he immediately started to brainstorm about how we could spend this “free money.” In my mind, our expenses went down $600. In his mind, we won the lottery and had $600 to spend. We laughed as we talked about our different perspectives and how mental accounting and behavioral finance theory was in play here.

Mental accounting is a concept in behavioral finance that explains how people tend to put money in separate mental buckets related to certain areas of life. This technique is often encouraged by financial advisors as it allows clients to save for retirement or for a big purchase and consider the money off limits. However, money is really just money and it has equal value. Your retirement money, your savings account and your daily checking account really are all in one big bucket when you look at it from a pure monetary standpoint. However, mental accounting which most of us do, allows us to see these separate buckets of cash as different and therefore, the rules we apply to these accounts vary as well.

The $600 in my husband’s mind was “free money” that could be spent elsewhere. However, it really was just an expense we did not incur. Rational financial law dictates that this amount should just not be spent. But when mental accounting and behavioral finance theory is applied an irrational human being like my husband feels wealthier and ready to spend this “savings.”

How do you treat the money you save when you negotiate a deal? Do you consider it money found and get excited about how to spend it? While this makes life exciting, it does not always make rational financial sense.

Kathleen Burns Kingsbury is the author of “How To Give Financial Advice To Women: Attracting and Retaining High-Net-Worth Female Clients” published by McGraw-Hill, 2012. She is the founder of KBK Wealth Connection, and a wealth psychology expert and behavioral change specialist. She teaches financial services professionals how to connect, communicate, and collaborate more effectively with their clients to increase client retention and improve profitability. Her next book:  “How to Give Financial Advice to Couples” will be published in 2013.