Anatomy of the Financially Savvy Brain is a 6 week series that will run every Thursday until April 7/11. The entire series can be found under Money Tips.

Ever wonder what is actually happening inside our brains as we plan our money management strategies, bravely stave off impulse spending , and work towards that end goal of financial freedom? This series will answer those very questions by looking at the seven main processes of the brain and how they effect our money management.

Last week we looked at the third process, the Hippocampus.  This week we are going to look at the Limbic System.

The limbic system is actually the storage area in your brain for feelings and memories. Inside the limbic system, the hypothalamus, amygdala, and septum reside. This system is involved in our body’s very basic cycles such as appetite, sleep. It is also a big player in determining our mood, ability to bond, sexuality, and love.  It is also responsible for processing concepts of motivation and reward. This last piece is what is so vital for the financially savvy brain.

The limbic system interprets and directs emotion and behavior. Our emotions can be described as the “on-off switch to learning”. When the switch is off, the system is dormant and only the potential for learning is available. When the switch is on, the pathway to learning is open. When the limbic system interprets sensory information and dispatches it to the cortex for processing, it sets the emotional tone of the information before its reaches the cortex. If the limbic system interprets the information as positive, it dispatches a message of purpose and excitement and directs our behavior toward a goal. When this happens, we become motivated to act; thinking and learning are enhanced. When the interpretation is negative, the switch is turned off and thinking and learning are stifled. The system’s interpretation of sensory information is based on the person’s memories and immediate reaction to a current event. The more positive the learner’s memories and reaction to the event (emotional state), the better the learning will be. Research has shown that happiness has a positive effect on learning, memory and social behavior. Conversely, negative emotional states, such as anger and sadness, have been shown to have a negative impact on learning and motivation.

Because the limbic system is the mediator between thought and feeling, it is easy to see why emotion is so crucial to making good decisions and thinking clearly. Emotions can disrupt thinking and learning. When we are happy we have a “clear mind” but when we are upset we can’t “think straight”.  Positive emotions such as joy, contentment, acceptance, trust and satisfaction can enhance learning.

You see, the limbic system is involved in reinforcing positive money behaviours and our ability to stick to a budget. If we find that we experience positive things in our life because we manage our money well, then our brains learn that this is a positive situation and will work to motivate us to keep returning to it.

Conversely, prolonged emotional distress can cripple our ability to learn. We all know how hard it is to learn or remember something when we are anxious, angry or depressed. Similarly, if we are under undue stress and are full of negative emotions, we will be more prone to making bad decisions, including decisions about finances. We won’t have the motivation to do good.

So how do you look after your limbic system so it looks after you? Well, continue to put yourself into positive situations where your brain can make a positive association. Continue to manage your money well and reap the benefits from that. This will help train your brain to continue to seek a happy scenario.

Also, try to remove as much of the negative out of your life as possible. For example, if you are heavily in debt, work to get your debt paid off as fast you can so that the stress and anxiety you feel from having it goes away.

So, there you have it; the breakdown of the fourth brain process that plays a role in your financial success.  Stay tuned next week where I discuss the fifth process, the Cerebellum.

So, how is your emotional state? Are you in the positive and motivated realm or are you stressed and anxious?