When it comes to our relationship with money, logic often takes a back seat to emotion.

In theory, we should all budget wisely, invest consistently, and retire comfortably.

But in practice? We overspend, under-save, chase hot stocks, fear market dips, and compare ourselves endlessly to others.

That’s because money is deeply emotional. It’s tied to security, status, fear, freedom, and even our identity.

Understanding how our mind works around money can help us make smarter financial decisions.

Understand Your Relationship with Money

Your Money Mindset Is Formed Early

Our attitudes toward money often stem from childhood.

Whether your parents were frugal, generous, stressed about bills, or secretive about finances, those early impressions can stick with us.

Were you rewarded with money for chores? Did you grow up in scarcity or abundance? These experiences can create money scripts, unconscious beliefs that we’ve all heard before such as:

• “I’ll never have enough.”
• “Money is the root of all evil.”
• “If I work hard, I’ll be rich.”

These beliefs can guide financial behaviour for decades, unless we become aware of them.

Loss Aversion

One of the most powerful biases in financial psychology is loss aversion. Studies show we feel the pain of losing money twice as intensely as the pleasure of gaining it.

This explains why people panic-sell in a down market or avoid investing altogether. Even when logic says “stay the course,” emotion screams, “get out now!”

Knowing this can help us recognize fear-based reactions.

Wealth and Comparisons

Social media has made comparison a daily habit. We see someone’s new car or vacation and assume they’re doing better than us financially.

But spending money just to show people how much money we have, is one of the fastest way to have less.

True wealth is found in savings, investments, and financial freedom, not flashy purchases.

The Power of Enough

One of the most underrated financial goals is contentment.

Psychologically, the constant pursuit of more can create a treadmill effect where we’re never satisfied, always chasing more. Defining your own version of “enough” can bring peace and prevent burnout.

Financial Behaviour Is Habit, Not Knowledge

Most people know what they should do with money: budget, avoid debt, save for retirement. But knowledge alone isn’t enough.

That’s why automating savings, setting financial boundaries, and using tools like spending trackers can be more effective than reading another finance book.

Final Thoughts

Understanding the psychology of money doesn’t mean we’ll become perfectly rational.

But it gives us the power to recognize emotional triggers, re-write harmful or erroneous beliefs, and make decisions that reflect our values, not our fears.

I’ve been in a few different situations where money has been more abundant, and also where it has been very scarce. I’ve had to live very frugally at times to make ends meet, and I felt some past conditioning of scarcity had me living in fear.

Do you recognize any of these patterns in your own life?

Let me know below, thanks for reading!

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