The Psychology of Debt: What Small Business Owners Should Know

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As a business owner, you have stepped into a new playing field. In addition to your personal finances, you now have responsibility for your business’ financial health. Entrepreneurs are creative individuals who experience strong emotions. When it comes to money matters, those emotions can either help you or harm you. How do you think about your business’ financial health? How do your business finances effect your mood? What can you do to improve your psychological response to business debt?

As a business owner you are imaginative, action oriented, and driven to create change. Micheal Freeman, who studies the psychology of entrepreneurs, found that “People who are on the energetic, motivated, and creative side are both more likely to be entrepreneurial and more likely to have strong emotional states.” This means that business owners often experience strong feeling, both good and bad. This can mean very high peaks and low valleys. In his research, Freedman found that entrepreneurs were more likely than a control group to state that they had a history of depression, substance abuse, ADHD and bipolar disorder. As a collective, people that start businesses have strong emotions. Money is one thing that often triggers those strong feelings.

Money can trigger strong emotions in two ways. The first is a positive emotion. This can be comfort, security, elation, joy, and excitement related to a financial event. The second is a negative emotion. This could be depression, a sense of overwhelm, anxiety, fear, or anger. Because entrepreneurs are capable of feeling things very deeply, the emotional response to financial concern can be very strong.

What can you do? If your financial health is effecting your mental health, there are ways that you can give yourself relief. Take action by making a plan, getting help, finding balance, and re-framing your story.

Take Action

You know the value of a plan. A well thought out action plan can help you achieve your goals. Instead of feeling overwhelmed about your financial situation, begin to make a plan about how you can get out of debt. A good place to start is to get clear on exactly how much you owe. Nationwide Debt Direct offers a free debt calculator that is very helpful, or you can begin to look at your accounts and make a list on your own. Facing your situation head on and getting really clear on your numbers is a great way to begin to take action. Work with a professional to make a plan that will get you out of debt. Break your goal of getting debt free into small chunks, and then take it one step at a time. With a plan in place, you will know that you are on a track towards financial freedom.

Get Help

Instead of facing your financial issues alone, seek help. Talk to a professional, your team, your business partners, and even family and friends. Be open about your concerns instead of bearing the weight on your own shoulders. Find the support that you need.

Find Balance

You started your business because you are passionate about it. Be mindful that your passion doesn’t tip over into obsession. Find balance by sharing your focus with family and friends, your physical health, and other hobbies and interests. This can help you gain perspective on your financial situation, and find the clarity that you need in order to move towards financial health. Micheal Freeman puts it this way: “Build a life centered on the belief that self-worth is not the same as net worth.” Great advice! You are not the dollars in your bank account. Your identity is valuable no matter what. Separate self worth from net worth.

Re-Frame Your Story

Instead of thinking of your personal or business debt as a sign of failure, think of it as the expense for the lessons that you have learned. Have you learned anything by going through what you have? Who are you now because of your knowledge? What connections have you made? By re-framing your story you change change your own thought patterns about debt, and gain a healthier outlook.

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