Updated: October 3, 2020
What is emotional intelligence? It is a person’s ability to recognize their own emotions and those of others. It involves discerning between different feelings and using this information to guide their thoughts and actions.
More often, this requires managing and/or adjusting one’s emotions to adapt in various situations; and to help oneself achieve personal goals.
It’s important to learn about this especially if you’re a leader of an organization. But also, I realized that it can likewise help you to learn how to save money.
Author and science journalist, Daniel Goleman came up with the five constructs of emotional intelligence. According to him, these 5 elements, when developed, can help a person become a better leader.
What are these, and how does it relate to personal finance?
This is the ability to know one’s emotions and recognize its impact on your life.
One particular situation that comes to mind is when you’re an impulsive buyer. A lot of times, I noticed that unplanned purchases happen when a person is feeling down.
Buying something feels good, and even empowering. So at times when things aren’t going well in our life, or if we’re not in a good headspace, retail therapy becomes our “instant” fix.
Being self-aware means knowing the root cause of our impulse buying habit. And summoning the courage to deal with the real problem instead of distracting ourselves with short-term emotional solutions.
This is the ability to control or redirect one’s disruptive emotions.
In recent years, the stock market has been moving sideways. If you started investing around 3 years ago, then your stock portfolio is probably negative today. A handful of people have already asked me if they should sell their shares because they’re afraid of “losing” more money.
This is a good example of where self-regulation becomes helpful.
The stock market is a long-term investment. It will take at least 5 years, usually more, before you see significant gains in your portfolio.
The stock market is also volatile. So you should expect your investments to fluctuate in value, especially in the first few years.
Knowing this, it’s important to remain calm when prices go down. In most cases, you just need to wait it out and ride through the downtrend.
And if you must, you can analyze your companies and make a sound decision based on your investing strategy. Self-regulation means not giving in to panic, and avoiding impulsive actions.
3. Social skill
This is the ability to manage relationships so as to get along with others.
Back when I was still working in the corporate world, I had officemates who like eating at expensive restaurants. I had a hard time saving money because I believed that “pakikisama” was more important.
Then one day, our refrigerator at home broke down. It needed to be replaced immediately. Looking at my finances, I knew that if I minimized eating out, then I’d be able to afford a new fridge.
For a few days, I used whatever excuse I could think of to decline my workmates’ invitations to eat out. And then I realized lying to them won’t make things better.
And so, I summoned the courage to tell them the truth, and even admit my fear of being cast out of the group if I didn’t join them for lunch.
Fortunately, my officemates were kind and understanding. They still continued eating out, but I didn’t feel the pressure to join them anymore.
Moreover, we began thinking of more affordable ways to bond as friends. One of my favorites is hanging out in someone’s house during weekends and having a potluck dinner party.
This is the ability to consider other people’s feelings.
Often, empathy refers to putting ourselves inside someone else’s shoes. But when it comes to improving our financial habits, I believe that, that someone can also be ourselves.
Do you talk to yourself? I do.
I’ve found that self-talk is very effective in managing our thoughts, feelings, and actions. Of course, who else understands us better than our own selves?
When empathizing with ourselves, start by imagining that you’re talking to a friend instead. What financial advice would you dispense?
Sometimes, giving yourself some comforting words is enough to help you make money-smart decisions in your personal finances.
And in fact, we do self-talk more often than we might think. Try to be more self-aware, and you’ll be surprised how regular you do it.
So the next time you’re tempted to splurge unnecessarily, try talking yourself out of the impulse purchase.
This is the ability to be aware of what motivates you.
And often, the best motivation that we can give ourselves is having a strong “why”. That is, ask yourself why are you working so hard? Why do you need to save money? Why is it important for you to have investments?
For most, it’s because of their family. They want to secure a bright future for them, especially their children. And that’s why they work hard, save, and invest.
Constantly remind yourself of your reasons — your strong and personal “why”.
And then notice how it becomes easier to do the right thing; to be smarter with your financial habits; and to make choices that bring you closer towards your financial goals.