Ask yourself these questions:
- Do you make financial decisions based on flash emotions that you later regret?
- Have you ever purchased something in the moment—when it seemed like a good idea at the time—only to regret it later?
Marie Kondo's popular Netflix show, Tidying Up with Marie Kondo, has sparked a decluttering and purging frenzy for many Americans who have realized they own too much.
But for some people, letting things go is too difficult when those items might have an attachment to a memory or person. By staying in control of what items give you joy–and not stress–can help keep clutter not only from your mind, but also your home.
Just like how we tie emotions into physical objects and items, we also put our emotions in our money and finances.
We are built in such a way that our minds are constantly reminding us how something will not work. The amygdala in the limbic section of our brains helps to receive emotion such as fear or love and process them in a way that mainly–primarily–keeps you safe.
Your brain does not want you to venture into new territory. It prefers to dig its brainy heels in and repeat a pattern of behavior that historically has kept you safe and good.
It can feel easy (and relieving) at times to let our emotions sit in the driver's seat and make our decisions based on what feels good in the current moment. But, in the long run, we know deep down that taking the emotions out of decision-making is one of the best ways to create and sustain a healthy financial future.
How can we rewire our brains to make decisions based on our head, and not our heart?
Here are a few important emotions to be aware of:
1. Body Cues
When you have an experience that gives you a thrilling sense of pleasure or extreme discomfort (the high-low points on either ends of the spectrum), know that that is an excellent cue from your body, telling you it is not a good time to make a decision.
For example, you see a beautiful designer purse on sale, but it is still more than you know you should responsibly spend. Instead of making an impulse decision based on the sale price, take the time to pause, reset, and work to gain the tools needed to make an educated decision. Emotionally, it might feel wonderful to have that purse. Your pocketbook might not agree.
2. Acting on Impulse
Similarly, if you read an email, get a voicemail, or have an encounter that is upsetting, your impulse may be to act on it, deal with it and move on. But how many times that has that worked out? Rarely...instead, you probably after some time wish you would have given it more thought and chosen different words or actions.
Keep in mind that a non-response is still a response. Consider giving yourself a 12 hour rule, allowing the brain chemicals of emotions to recalibrate and return your emotions to a healthy baseline before acting. I promise you, this emotional delayed gratification will pay huge dividends.
3. Careless Planning
When organizing important items, if you have a habit of not listing the pros and cons for each item to keep, it can be difficult to develop a clear path of making a better decision for your financial life. For example, you want a different house, maybe bigger, maybe smaller, a different town or neighborhood. Rather than having the banker tell you the most you can buy based on your financial situation.
A better plan would be for you to consider the other expenses associated with selling and buying a new house, such as selling fees, potentially any tax liability...sales tax, and maintenance fees, the repairs needed to sell and or move in. And how does this large expense affect your other bills you must pay. Consider working with a financial planner to get a grip on this.
4. Wanting a Quick Fix
Don't get emotional and take out long-term money to solve a short-term money problem. This is one of the most gut-wrenching decisions as a financial advisor that I see clients make too often than I would like. When I see people taking out retirement money to pay for a house or take a vacation, it is sometimes all I can do not to throw my hands up in the air.
I have NEVER seen this scenario really work out—you might say that you will pay it back, but most people don't. Life gets expensive and complicated and your retirement suddenly becomes low priority. Don't let your emotions drive a decision that will adversely affect you the rest of your life.
My advice, for any problem you may encounter, is to break down your actions in small enough pieces that you can systematically work through them. I promise you, even if you have 100 small goals on that list, you will get to your big goal if you work on it this way.
What's the smallest, most achievable part of what you want to do? Break it down into actionable items and do the smallest thing first. Not only does crossing off tiny goals give you a sense of achievement, but also helps systematically rewire your brain so you can create the life balance you have always wanted.
Stop looking back, keep your intention on your goal. Take the emotion out of your decision so you can make the best decision now and that will support a healthy financial future.
If you're looking for more ways to avoid financial pitfalls based on emotions so you can build a better financial plan, schedule a free call with us today.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.