Emotional Intelligence (EQ), is the ability to interpret and express emotions and use these emotions to facilitate thinking, understand reasoning, and effectively handle interpersonal relationships. Simply said, being able to understand and assert control over circumstances you face on daily basis.
Even though I’m not an expect in the subject matter, I just read a lot about this topic and was fascinated to discover the relationship between emotional intelligence, money, and wealth management. As well as the challenges we face every day when we let our emotions control important decisions. The bottom line is that this has an effect on our finances.
The Basics
Our brain processes emotional intelligence from one end of the brain at spinal cord to the other end of the brain which is the front place where our rational thinking takes place. In between there is a limbic system, the place where our emotions are generated.
As communication travel from the back of our brain to the front of our brain, we have an emotional reaction to circumstances before our rational mind is able to analyze those circumstances. This is how our brains operate and needless to say strengthening your emotional intelligence requires great deal of practice.
The pioneer of emotional intelligence, Daniel Goleman, throughout his research and publications identified five key elements that define emotional intelligence at its core:
- Self-awareness — of ones feelings and the impact those feelings have on others
- Self-regulation — controlling your emotions before acting on impulse and making a final decision
- Motivation — stay the course despite all the noise and obstacles, focus on achieving your goal
- Empathy — ability to understanding others feelings
- Social skills — I call this people skills, being able to maintain relationships and inspire others
Looking at these five elements you begin to understand the degree of self-control required in order for you to enhance your emotional intelligence skill. Remember to pause for a second and think before you make a wise decision, financial or otherwise.
We Expect Immediate Results
As far back as any statistical evidence goes, we humans have very low tolerance for patience and want immediate results. This is true for every aspect of our lives. Just stop and think for a second, how fast do we want to get rich, how fast do we want our business to be successful, how fast do we want to advance in our career, how fast do we want to lose weight, how fast do we want to flip that house? I can go on and on and on about how badly we want things NOW.
Fast forward to present day and it is evident that we live in a fast moving world, where we want everything instantly regardless of what we are doing. But we forget to develop realistic expectations and understand that success takes time and a lot of hard work, we just tend to focus on the end result therefore setting ourselves up for failure.
To be quite frank, our expectations are totally behavioral. If we expect things to happen immediately and we don’t get the desired results, we simply give up, therefore lacking patience. Here is a perfect example, you decide to invest in the stock market, all of a sudden the market plunges, you panic, start selling off your investments and drawing the wrong conclusion. Why? Be patient, the market does experience extremes, but at the end it is self cleansing.
Same can be said about overestimating your ability and underestimating that changes takes time. When your performances are not as good as what you predicted, you get disappointed and unfulfilled. On the other hand, we tend to forget that changes take time just like making a loaf of bread from scratch. But we are wired to do things quickly with the click of a button. We believe anything can be done successfully; immediately.
The Problem
When you don’t see immediate results from your action, you are going to be tempted to take short cuts, have unrealistic expectations, and feel uncomfortable. You are going to start using excuses about everything that is going wrong in your life. Ultimately, influencing your behavior and making it more difficult to achieve the results you want.
That is when laziness and anxiety kicks in and all of a sudden you become overwhelmed managing your finances so you prefer to avoid it. Instead of solving the underlying problem you are covering it up and ultimately forgetting about it.
Overconfidence may cause you to think that you can reach your goal with ease, and then if you do not get immediate results you struggle to stay on course.
Therefore, it is no surprise that majority of people do not set aside money for long term investments because they want to spend their money today and because they don’t have faith in the stock market. Leading to making a decision that is based on complete irrationality.
Always Have Realistic Expectations
“Patience, persistence and perspiration make an unbeatable combination for success. “
Napoleon Hill
Commit to long term strategy and stick with it. You must fundamentally think differently than most people and create realistic expectations. Know that you can not start saving and investing if you spend 100% of your income.
Face the fact that change is not easy, especially when you are trying to achieve your ultimate goal. Progress toward your goals might not always be as simple as drawing a straight line from point A to point B or B to C. Understanding that sometimes, unpleasant things that happen along the way, is indication that good things are ahead of you.
Pace yourself and do not let emotions prevail over logic.
Final Word
It could not have been said better than Warren Buffet addressing his shareholders in 2007 by saying ““Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”
Much of what is discussed here is what you already know and have been doing to some extent in your personal and professional life. This post is just a reminder of understanding the “basic” principles so that you can navigate through whatever comes your way a lot more efficiently and effectively.
Some may say it’s common sense others may say its more than that, I agree with both. At the end it boils down to self-control and progress, something that can benefit everyone, everywhere. There is no end to how far you can go once you master the behavioral habits between emotional and rational thinking.
