How emotions affect financial decisions

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How emotions affect financial decisions

The choices you make with your money aren’t purely rational; they’re deeply intertwined with your psychological makeup. Understanding the psychology of money can help shed light on your financial decision-making.

Understanding emotions

Emotions like fear, greed and impulsiveness play a significant role in your financial choices. Fear can lead you to make overly conservative investments and miss out on potential gains. On the other hand, greed or desperation might push you towards risky investments promising unrealistically high returns. Impulsiveness can lead to unplanned spending and derail your goals.


Your past shapes your future

Your family background, life experience and cultural norms can also shape your attitudes toward money. A scarcity mindset developed in tough times can lead to excessive hoarding. Growing up in a family with a carefree attitude toward money might give you a tendency to overspend. Social comparison is another influence: trying to keep up with your peers’ lifestyles can cause financial strain.

Mindful decision-making

Recognizing your emotional triggers can help you make more deliberate financial decisions. Create a clear budget, set financial goals and take note of situations that cause you to veer from your plan.

If you’d like support in making healthy financial decisions, talking to a financial advisor can help.

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