top of page
Search

Emotional ties to descicions

  • Writer: Richa Munjal
    Richa Munjal
  • Nov 30, 2024
  • 3 min read

Updated: Jan 3

    The first step to becoming financially literate is to understand why so many people are not. Oftentimes, we let our emotions take over when making financial decisions. This is detrimental because irrational emotions can lead to irrational choices. While emotions are linked to many everyday decisions, financial decisions are too impactful to be solely governed by them. It's crucial to recognize the irrationality of our emotions and focus on the objectivity of the financial decisions that we make. It is our job to distinguish these factors and separate them in order to come to meaningful decisions. This may be easier for people who have made relatively sound financial decisions in the past, but those who have made financial mistakes may struggle more.  This is because each new decision they may make is influenced by the stress of their past. However, even experienced investors make financial mistakes. You need to make sure you have a fleshed-out plan and don't just drop your plan out of greed for more money. For instance, let's say you frequently invest in a stock and decided when you invested you would sell the stock once it reaches $400. A few months later, you have reached $400, but you are so excited with this fast growth that you hold onto the stock for even longer since you believe you will make more money. But now it turns out this was short-term growth and the stock plummets to the ground, below the price you purchased it at. Now you have lost your money! Even the investor was so heavily influenced by their emotions that they made a bad financial decision. So, if you make a bad decision, try not to stress too deeply about it; this stress can put you in a worse situation. Easier said than done, right? Studies have shown that money issues are the leading causes of stress, relationship issues, and divorce. Understanding the personal impact of these mistakes on one’s personal life is key to minimizing their influence on future decisions. If we allow a discouraged mindset to shape our decisions, we will fall into a continuous cycle of bad decisions. Together we can break this cycle and allow younger audiences to avoid these mistakes. While it is impossible to terminate the influence of your emotions when making decisions, you can do your best to minimize it.

Steps to Minimize the Effects of Your Emotions on Financial Decisions

  1. Education. With more financial education comes greater confidence—confidence needed to make significant financial decisions. If you are confident in what you are doing, you are less likely to let negative emotions influence you.

  2. Developing a clear financial plan. This may be difficult to do on your own; therefore, you need to get into the habit of being okay with asking others for help. With a trusted team of financial advisors, you can tackle your finances effectively!

  3. Attaining financial security. If you are in a stable financial position where you are not in debt and you have emergency money put away, you are less likely to allow stress to negatively impact your decisions.

If you ever feel as though your emotions are getting in the way of your financial decisions, or any decision you make, remember to PAUSE. Take some time to relax. Start writing down your options on a piece of paper and ask someone you trust to help you evaluate your choices. We need to ensure that as a generation we can control our emotions to bring us greater financial security in the long run.



 
 
 

コメント


Subscribe to Site

Thanks for submitting!

bottom of page