Sometimes people make the oddest financial moves. It may be because the use and possession of money is, at times, wrought with emotion. Understanding some of the psychology surrounding money can help us control those urges to spend and invest irrationally. Here are seven principles of psychology you can use to help improve your financial health. 

These concepts will help identify why you treat money as you do:

1. Understand your money mindset by examining your past.
How was money handled by your parents? Did they share with you that they always needed more, or was there always more than enough? Did Mom and Dad give you any guidance on saving or spending? Were you ever wounded by money? You may have been denied a new toy or prevented from joining the baseball team because there wasn’t enough money. 

If you understand your past experiences with money, you may find that some of your current attitudes about money came from your financial environment while growing up.

2. Examine your fears about money.
We need money to live and maintain a lifestyle. Most of us are dependent on money to allow us the basics in life like a place to live and food to eat. For some, the fear is legitimate as there just isn’t enough money to provide for life’s fundamentals. Others may be anxiety-ridden because they always imagine the worst-case scenario. I’ve seen this situation with clients who are multimillionaires.

What does running out of money really mean? Would losing your money deal a blow to your self-image? Perhaps you believe that your family and friends would be disappointed in you. Or maybe you fear that you’ll be forced onto the streets: penniless, homeless and hungry. If you have insecurities about money because you fear it will run out, you may choose not to take on even a mild risk for your money to work for you. And a lack of confidence about money could lead to poor financial decisions. 

3. Consider how much money defines your image.
Much of the fun of owning a Porsche or Christian Louboutin shoes is the feeling you get when you drive up or step out. Whether others notice or not, you think they see you and your shoes, and you may feel better because of it. But is that good feeling worth making some bad financial decisions?

4. Think about your attitude towards budgeting.
I know very few people who follow a budget. Most people I talk to think that they can handle their spending because they just know or feel when they’re spending too much. They don’t, and they continue to hold huge consumer debt. A budget allows you to use your money as a tool. A budget is not restrictive; it can provide financial freedom because you are on top of your earning and spending. When you have a budget, you know the rules.

5. Beware of keeping up with the Joneses.
Keeping up with the spending of our peers is often more of an internal than an external thing. That means we may be trying to prove to ourselves that we’re as good as everyone else. This is another psychological barrier to spending within our set of financial circumstances. Every family will have different income and needs. Embrace yours.

6. Confront the urge to procrastinate.
How many times have you told yourself that you’re going to begin that emergency fund or start funding your 401(k)? Simple solution — just do it!

7. Spend consciously.
In spite of our psychological attachment to money, it’s just a tool. Learn the basics and live within your means. Spend consciously. This means that you make conscious decisions on precisely where you’ll spend. Some of your money will be for the basics like food and a home. Decide how much you’ll save and how much you’ll spend for going out.

Rather than reacting to your overspending when you see your credit card bill, make the decisions on the front-end of the spending cycle. That’s conscious spending.

Hopefully, you can identify the psychology that affects how you handle money. There are several things that you can do to remove some of the emotion that affects the way you earn and spend.

  • Automate savings and bill paying. If you set up automatic deductions, particularly for savings, your discretionary spending will be limited to whatever is left.
  • Don’t put it on a credit card unless you absolutely have the money and will pay it off that month.
  • Pay yourself first. This means set aside your retirement savings first before any other spending.