Understanding this psychology can help us to make more rational financial choices, so we explore some key aspects to look out for.
Money is often one of the most stressful factors in our lives and is deeply influenced by our emotions. Whether it’s the thrill of a successful investment or the anxiety of a mounting credit card bill… the way we feel plays a significant role in the financial decisions we make. Understanding this psychology can help us to make more rational financial choices, so here are some of the key aspects to look out for.
Fear, pride, greed, envy… no matter how in control we feel, these complex emotions are often what drive our financial decisions. Fear can make us overly cautious, preventing us from taking calculated risks that may lead to growth, greed may push us into ventures without first undertaking proper research, and envy can result in spending money we can’t afford to on material items we don’t need. Recognising these emotional triggers when they arise is the first step towards making better decisions.
Sometimes the power of temptation can take over in the form of impulse spending, providing instant gratification or a rush of emotion. Retailers put a lot of work into product placement to encourage this, often through enticing displays, placing products in your direct eye line or through strategic advertising. Try and pause before making a purchase and ask yourself if what you’re about to buy is really needed or aligns with your financial goals.
FOMO can be particularly harmful when it comes to investing. It may prompt you to jump on the bandwagon of the latest investment trends without researching it first, or prompt you to withdraw money from an investment prematurely. To avoid this, take a step back and remember that investing should be a well-thought-out, long-term strategy, rather than a reaction to short-term changes in the market.
Many people tie their self-worth to their financial status which can lead to overspending in order to try and keep up appearances. It’s important to remember that the value of a person is not defined by their financial success.
To help combat emotional spending, improving our financial literacy can help us to better understand the implications of our choices, about different investment options, savings strategies, retirement planning and more. Part of your financial advisers role is to ensure you understand what is involved with your strategy, so if you require further clarification, it’s best to get in touch with them. Having a clear understanding can provide you with the confidence to make decisions that will benefit you in the long run.
Emotions and money are intertwined, but with more awareness and recognition of the emotional aspects of your finances, you can navigate your financial journey with confidence and clarity.
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