How Emotions can Make or Break Financial Health

Emotions, often called feelings, are a compelling force within our mind that has the power to influence our behavior and drive us into making immediate action. We experience emotions in three primary types: ecstasy, terror, and despair. These basic emotions can morph to several other forms that include trust, joy, love, surprise, hate, anger, disgust, sadness, grief, panic, and fear. We develop emotions as we think, then feel, and then act.

What is the connection of the abstract attribute of emotions to the finite significance of our financial health? There is direct and proven critical link. Emotions can MAKE or BREAK our financial health. Consider the following real-life examples of success and failure in financial life shaped by decisions, reactions, and behavior borne out of extreme and uncontrolled emotions:

1. Burst of disgust and anger = Lost job, perks, equity, and money.

A friend of mine, Rex, had been funded for US$ 1.2 Million in a start-up company by Thor, a venture capitalist. Thor gave Rex an excellent engagement package: CEO position, very competitive salary and benefits, 15% business ownership share, and 4×4 SUV service.

Just after the second month of business operation, Rex was already saddled with serious funding problems. Thor had repetitively reneged on the schedule and amount of funding releases as contained in the business plan. Despite the problem, Rex did his best to face the odds and steered the company well in its first year. But Rex had incurred necessary business debts and many suppliers were already running after him.

During the executive committee meeting, the capitalist announced that he could release only 30% of what Rex needed to pay the suppliers. In despair, and disgusted behavior, Rex took the floor from Thor and in a raised and angered voice said: “If this is the kind of support that we will continue to have to run this business, we might as well close shop. Let us cut, and cut clean. We will never fly.” Surprised and humiliated, Thor, a successful equipment trader, responded in a similar angry manner: “If that is the way you want it, no problem with me. Let us cease operation. You taught and coached me to use other people’s money, so I am negotiating a loan to address your needs. Ok, let us part ways if that will forever suit you and me.”

This example highlights a case of two people demonstrating boiling passionate emotions of disgust and anger that led to the closure of the company and the loss of employment for no less than 12 people. Instantaneously, by the wink of an eye, Rex lost everything that he had with the company, his financial stature suddenly chopped off. For the capitalist, he had lost all spent investment and the prospect of attractive investment returns.

2. Unreasonable grief and sorrow = Lost career and financial stability

Don, a highly paid and privileged senior management officer in a multinational company, has extreme love and attachment to his children. Don would do anything for his children and would not accept anything that would endanger their interest. In all talks about family life, Don had repetitively said that his children were the singular reason for his stellar career and existence. The onset of severe, unreasonable grief and sorrow: Don’s eldest daughter, at 16 years of age, and pregnant, had eloped and lived with an 18-year old and unemployed school drop-out.

Grieved by the abject loss of his daughter and tormented by the thought that his daughter was in bad hands, Don sought refuge to drinking. Don changed from being a workaholic to alcoholic. He started to fail attending important office meetings. And thinking that he should be spending more time with this his children, Don suddenly decided to leave an 18-year financially attractive career by opting to take an early retirement. The result: Don is very happy with his children, but his financially stability is a now day-to-day battle with having to sell something to make a living. Don has no more five (5) cars but one, no more four (4) real estate properties but one, and no more extended vacation in resort venues but in his home.

3. Failure and despair = Progress and improved financial capacity

Forced by financial circumstances, George had to start working while in his last semester in college with a premier university. Without any college degree to crow about, George joined a leading management consulting firm in an entry level job as a proofreader.

After his college graduation and motivated by later seeing one of his classmates being accepted in the prestigious management services group of the consulting firm, George applied with the group, took the qualifying exam, and topped it. After waiting for six months for a possible transfer, George contracted a strong feeling of loss, disillusionment, and totally being jilted when he was denied of entry to the group while two other external applicants were accepted for the position.

On receipt of his job denial, and incensed by a passion to show his present employer that he could excel somewhere else, George had a one-month leave of absence. During that leave, George worked on his entry to the graduate school of business of another premier university for his MBA; at the same time, George successfully obtained a new job as a Research and Planning Assistant with a leading pharmaceutical chain. From then on, George charted a fulfilling management career. At one time, the consulting firm he first joined even recommended George for a sensitive staff position to one of its leading multinational clients, where George directly reported to the President and enjoyed a financial compensation twice as much as his pay at that time.

4. Extreme joy in Success = Missed opportunity and failed investments

The euphoria and aura of success is, at times, blurring, if not pathetically blinding that we miss passing opportunities and become neglectful of what we need to do to protect our excess money. This is what happened to my friend, Allan, who had to taste such a baptism of fire before finally learning his lesson.

During the period of boom, Allan’s financial net worth dramatically expanded, equipment sales from his trading business flourished with big supply contracts coming in unending succession. Allan had so much excess money that he went into high portfolio stock investments in blue chips and speculative placements. The more Allan became ecstatic with his financial success when his initial stock investments doubled in a short span of time of less than one year.

Without thinking and without prior analysis of risks, Allan reinvested in stocks all existing placements and new earnings. Allan slowed down on his business activities and decided to live like a king, enjoying prime amenities in life and completely savoring the fruits of his success. After all, as Allan had said, “all my business and investments will self-grow. I am fulfilled.” With recession coming like a thief a night, Allan’s euphoria of success started to flicker. He lost practically 70% of his excess money and was able to recoup just 30%, which he used as his business survival money.

5. Fear and peer pressure = career success and financial growth

The last, but an equally important example, is when a person is constantly hounded by that eerie feeling that he might be left out in the company of friends and peers in the career race. This is the case of Reynaldo, a young and ambitious entrepreneur.

Having grown from a family with middle-class means, but having developed close friendship with rich classmates in college because of his superior human relations skills, Reynaldo was always highly emotional whenever asked by peers as to what he would do after college. Reynaldo’s friends and peers had clear compelling goals for which they were prodding Reynaldo to join them. Short of financial capacity, Reynaldo was always at a loss, to the point of fear, in answering their question and invitation.

At an early stage, during his senior college year, to stave off his fear and keep up with the Joneses after graduation, Reynaldo invested a small amount in rolling food cart business, perfected on its quality, service, and location requirements. After his graduation, Reynaldo had already put up three rolling carts in different locations, earning hefty financial returns while being 3-4 steps ahead of his friends and peers.

We can cite several other examples of the connection between emotions and financial health. But, they will all boil down to one thing: it all depends on how you view things and manage your emotions. You can experience ecstasy but flounder. You can feel despair and frustration but grow. You can contract fear and terror but transform to the point of success. The lesson: think, feel, and act on your emotions, but with reason, purpose, and value so that you are always financially better off.