As much as we like to think that our money decisions are purely rational, the truth is that emotions can often come into play. Whether it’s fear, greed, or simply the desire for instant gratification, our emotions can cause us to make choices that aren’t always in our best financial interest.
And, it’s a topic that has received plenty of press and study. Learning about how our emotions play a part of our decisionmaking, especially with respect to money is key. Here are a few options if you are inclined to learn more:
From Harvard Business Review https://hbr.org/2021/08/why-are-we-so-emotional-about-money
From Vanguard: https://investor.vanguard.com/investor-resources-education/article/the-science-behind-money-and-emotion
From the New York Times: https://www.nytimes.com/2017/05/08/your-money/yes-numbers-matter-in-money-decisions-but-so-do-emotions.html
So, how can you stay financially savvy in the face of these emotional challenges?
First, it’s important to simply recognize that we are emotional beings making emotional decisions. Studying up on the topic, like following the linked resources above, can help clarify just how much we rely on emotions to make decisions about money. Rather than fear it, recognize it and embrace it.
Second, it’s important to be wary of bad financial advice that you may come across on the internet or from well-meaning friends and family. Always do your own research and consult with a trusted financial advisor before making any major money decisions. Internet sources are frequently created by folks who know how to trigger emotional responses to your detriment and their gain. So, be wary.
Third, take a few smart and non-emotion driven steps. If you have an employer sponsored 401k, consider taking advantage of it or other retirement savings plans. These plans offer tax benefits and the potential for tax-free investment growth, which can help you build long-term wealth. If you make contributions to your 401k, for example, those contributions (called elective deferrals) are made “pre-tax.” This means they are free of payroll taxes and, in a sense, the federal government is subsidizing your savings. There aren’t that many instances where you can say the federal government does this, so take advantage of the opportunities that exist.
Finally, be mindful of your emotions when making money decisions. If you feel yourself getting caught up in fear or greed, take a step back and evaluate your options objectively. Remember that a little bit of patience and discipline can go a long way when it comes to building financial security. It might make sense for you to hire a financial adviser (I’d suggest one that holds themselves out as a fiduciary, such as a CFP), or enlist the help of a financially savvy friend.
By staying informed, seeking out professional advice, and being mindful of your emotions, you can take control of your financial future and stay financially savvy no matter what life throws your way.
If you want to hear more about this, check out our latest Episode on the Podcast: https://wealthandlaw.com/2023/04/05/master-financial-savvy/
Photo by Domingo Alvarez E on Unsplash
If you are enjoying the blog or podcast please SUBSCRIBE and leave a REVIEW, and if you want to learn more about Brent go to https://wealthandlaw.com/team/.