Behavioral Wealth: Why Emotional Intelligence Drives Financial Intelligence
Financial intelligence is the skill of effectively managing finances through an understanding of financial matters and intelligent analysis. This multifaceted skill set encompasses financial literacy, analytical abilities, risk management, strategic thinking, and more. However, financial intelligence is more than numbers – it also has a lot to do with emotional intelligence. Learn more about the influence of emotional intelligence on financial intelligence in the post below.
Table of Contents
Emotional intelligence overview
Emotional triggers that affect financial intelligence
How EQ improves financial intelligence
How to improve EQ
How to improve financial intelligence
Conclusion
References
Emotional intelligence overview
Emotional intelligence (EQ) is the ability to perceive, express, understand, and manage our emotions and those of others. First described and conceptualized in 1990, EQ was found to involve certain skills linked to the evaluation and regulation of emotions, and which consequently lead to achieving a variety of adaptive outcomes. Research suggests that EQ is a set of non-cognitive abilities and competencies that influence the ability to be successful in coping with environmental demands and pressures.
In the financial aspect, a high emotional intelligence allows people to resist lifestyle inflation despite rising income and stay invested when markets crash. Moreover, EQ helps avoid spending money after a bad day. It allows you to pause, take a few moments to think before making emotional financial decisions. Emotional intelligence is the one that keeps the financial strategy intact in moments when feelings try to hijack it.
Emotional triggers that affect financial intelligence
Financial intelligence and the goals you’ve set out for yourself depend greatly on EQ. Several emotional triggers can affect your financial efforts, such as:
● Fear: Factors such as market instability and work-related uncertainties, or just anxiety of losing money, cause people to hoard cash, pull out of investments too early, or make other risky choices that minimize long-term growth.
● Envy: One way to disturb financial peace is to compare yourself to other people, your business to other companies. Oftentimes, we sabotage our finances trying to match someone else’s lifestyle or their spending habits.
● Greed: Overconfidence often creates a fertile ground for excessive risk-taking behaviors such as leveraging debt, buying speculative assets, and chasing high returns without a safety net. Greed sometimes takes the shape of ambition, but ends in financial losses.
● Ego: The need to prove financial expertise may push people into making bad choices. The problem with ego is that it “blinds” a person so that they refuse to admit mistakes, learn from others, or adapt to sudden changes when necessary.
● Shame: Sometimes people avoid dealing with money due to shame regarding previous bad decisions or scarcity in childhood. This behavior leads to denial, avoidance, and dysfunction, which negatively affect financial intelligence and spending choices and habits.
Understanding emotional triggers behind financial decisions empowers you to make more thoughtful choices. You get to step away from less rational moves and focus more on well-reasoned decisions.
How EQ improves financial intelligence
Emotional intelligence improves financial intelligence by fostering self-control, better decision-making, and interpersonal skills that influence financial outcomes.
Let’s take decision-making as an example. EQ helps people manage emotions like greed or fear. These emotions often lead to impulsive financial choices such as panic-selling during market dips or chasing risky investments. High EQ allows for a more rational analysis so that people and companies alike can align decisions with their long-term goals.
Additionally, emotional intelligence strengthens self-awareness and impulse control, both of which are essential for budgeting, saving money, and avoiding unnecessary debts. People with high EQ are capable of resisting lifestyle inflation and temptations to overspend. They prioritize long-term financial goals rather than instant gratification.
Financial pressures such as unexpected expenses and market volatility can be quite stressful. Stress negatively affects judgment and spending habits. Emotional intelligence improves stress management, thereby maintaining clarity to navigate challenging times and overcoming obstacles along the way. This positively influences your financial decisions.
Emotional intelligence improves financial intelligence through enhanced interpersonal skills, too. After all, EQ improves communication and empathy, which are crucial for financial negotiations. That way, you can secure better deals, collaborate with financial advisors more effectively, and resolve money-related conflicts successfully.
High EQ promotes resilience and optimism, thus helping you stay committed to financial plans even in challenging times. Such a mindset supports debt repayment, consistent investing, and business growth.
How to improve EQ
Good EQ exhibits a positive influence on financial intelligence and spending habits. You can improve your emotional intelligence in the following ways:
● Build a support network
● Learn to recognize and respond to tension
● Try journaling
● Seek feedback from colleagues, peers, and managers
● Perform individual self-assessment to identify your strengths and weaknesses
● Practice active listening
● Pay attention to your emotions, i.e., think about what you’re feeling
● Practice mindfulness
● Cultivate a growth mindset
How to improve financial intelligence
Just like EQ, there’s a lot you can do to improve your financial intelligence. Here are a few examples:
● Manage your debt
● Create a realistic budget and stick to it
● Increase financial knowledge through education and courses
● Start saving money and create a savings plan
● Track and evaluate your monthly spending habits
● Journal your emotions around money
● Wait for 24 hours before making non-essential purchases and big financial decisions
● Practice financial mindfulness by regularly analyzing your relationship with money
● Surround yourself with people with high EQ and financial intelligence levels
● Identify your money stressors, i.e., what scares you the most about money and finances
Conclusion
Financial intelligence allows people to make key decisions in their personal and professional lives. But financial intelligence doesn’t revolve around numbers only. Emotional intelligence exhibits a major influence on one’s financial intelligence and spending habits, in both personal and professional aspects of life. In order to thrive as a person or in a professional setting, it is essential to work on improving EQ, so that financial decisions can lead to a much-deserved success. Remember, in order to understand someone else’s emotions and behaviors, you need to understand and manage your own first.