Money is not just numbers on a page. It's intrinsically connected to lifestyle, hopes, dreams, provision for the unforeseen. We get excited when the stock market goes up, and we get somber when the market goes down, or worse, when we lose a job.
Emotions are valid and important, of course, but in areas of finance emotions can lead us in the wrong direction. Especially when most financial transactions can happen from a laptop with the click of a button, it's especially important that we not let emotions control our decisions.
When our feelings take the lead, what can happen?
1. Impulsive behaviors rarely lead to good long-term financial outcomes. What does lead to a good outcome is steady movement year after year in one direction. An example is setting aside a small amount each month for a vacation, or investing a little bit out of each paycheck over a long period of time. The workplace retirement plan (usually a 401(k) system) is a great example of how planning can trump emotion for a good long-term outcome.
2. When we have emotional responses, we can deviate from a well-planned strategy. Most planning is done over a period of time, with input from others, based on guidance or research. Emotion involves none of these. Our financial success depends on following the plan not our feelings.
3. In the matter of the stock market, most investors personal returns lag the market returns? Why? They sell when things are going down, then wait for thing to go back up before feeling good and starting to invest again.
So what can to do to let objectivity rather than emotion drive your financial decisions?
1. Educate yourself. What mistakes have you made when you made decisions based on emotion? Was it a certain time of day, related to other emotional situations, influenced by certain people?
2. Set clear goals and keep copies of the reasons you picked those goals. If you did research, keep it. This will remind you in moments of weakness why you took the action you did.
3. Automate. This is the single most important action to remove emotion from the equation. You can even make a rule for yourself that you will impose a cooling off period before making any changes to your automated plan.
4. Avoid too much financial noise. There is not a single news outlet anywhere - print, television, online - which would run this headline: "Nothing really consequential happened today, so we recommend you spend some time taking a walk with your dog and don't do anything with your money." But almost every day, almost 100% of the time, that is the right thing to do. But it doesn't sell the newspapers, as they say.
Your goal is stay on track and not get fazed by your emotions.
When you have more in the bank than you need, then the emotions of gratitude and contentment or generosity will be more than worth it.
Disclaimer: The views expressed on this website reflect the personal opinions and experiences of the writer. Nothing in this article constitutes financial advice in any way. Information on this website should not be relied upon for investment or business advice. Please consult with a qualified financial professional before making any financial decisions. 3800225