How Emotions Affect Your Financial Decisions

Today’s guest post comes from Amy Nickson. Amy is a web enthusiast and loves sharing her expertise through her crisp and well-researched articles, based on money management, saving, and debt reduction. You can follow her blog Working Moms Word where she shares her expertise on personal finance field.

Your emotions may influence your financial decisions. How?

Whether you’re happy, sad, angry, or scared, emotions have the power to affect your life decisions (here, I mean your financial decisions). Everyone wants to handle their finances smartly, but emotional spending is the Dickens that can derail your budget easily.

Have you ever bought something in the heat of the moment and later realized that you shouldn’t have purchased it? Don’t worry if you’ve gone through this experience. It’s common, but it can push you into a financial mess if you’re not aware of it.

Now, let’s explore how emotions have the power to influence your financial decisions:

1. Emotions will convince you to buy things that others have

We often feel morose as we don’t possess something that others have. This habit of comparing our lives with someone else’s is a familiar human behavior. We want everything that another person has. And, if that makes him/her happy, we think purchasing that particular item would also make us happy. But, that’s not true. How much happy or sad you would be, doesn’t depend on what you buy. Others have bought it because they can afford it. If you make purchase decisions based on your emotions, you’ll soon see yourself amidst a financial whirlwind.

2. Emotional spending will make you feel more accepted

Some branded items like clothes and makeups will convince you that you look more beautiful. As a result, you buy those things without even taking a look at your wallet. And, there you’re completely swayed by your emotions. You feel that purchasing branded products would make you more accepted among others. It’s good if you want to look beautiful. But you don’t need to buy things to achieve beauty.

3. Emotional spending will assure you to kill your boredom

Shopping is sometimes considered an event that will make us happy. So, we often go on a shopping spree when we’re sad or bored. If you’re already in debt, remember, shopping as per your mood swings won’t let you get out of debt. In fact, it’ll put your finances more under pressure. Visiting restaurants or shopping malls each time you feel sad or bored is not a solution to uplift your mood. Instead, look for free options like read a good book or listen to your favorite song to get energized.

4. Emotions can influence your financial judgment

Making vital financial decisions (like whether or not to co-sign a loan) easily gets affected by your emotions. Thus, making your financial decisions less rational. Helping others is good. But, making others happy at the cost of your finances is foolish! It’ll lead you to grave monetary turmoil and hence, your finances will suffer. So, help others only if you think your finances can take the load.

5. Emotions can ignore important financial issues

Your economic picture can get blurred if you don’t address vital financial issues like increasing debt at the right time. Emotionally, you may feel that you have ample time to get out of debt. But, in reality, times moves faster than you think and you could end up running out of time. Face your financial problems head-on as they come. The more you delay, the worse your financial situation would become.

6. Emotions won’t let you ask for help when in difficulty

We think that we’re emotionally so strong that we can manage a problematic financial situation well. But, the real picture is different. Not all difficult economic situations are easy to handle. Sometimes, we need to take help from financial experts. They have the expertise to handle the situation better than us. So, whenever in doubt with your finances, feel free to ask for help.

7. Emotions may hurt your long-term financial goals

Our emotions often control our long-term financial decisions. For instance, we frequently get tempted to sell our investments at the wrong time to make a fast buck. Doing so will hurt our finances in the long run. So, think about the future consequences of making hasty decisions. Don’t get influenced by quick returns. It would only hamper your financial peace of mind. Emotions play a meaningful role in our lives. Without emotions, we’re just human bodies without the soul. Emotions often lead us in the wrong direction. For instance, emotional spending will make you spend on unnecessary products causing damage to your finances. So, try to keep your emotions aside when deciding on financial matters.

How have your emotions affected your spending?

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  • youmeanme Nov 4, 2016, 4:13 pm

    Oh yes! With Christmas fast approaching I’m going to have to guard against it as it’s so easy to go into debt to make people smile. I think the worst is that the folks in my life don’t crave the gift as much as I want to give them loads of things. Therefore my emotions take over and I’m buying one more thing to complete the present…

    • Mad Money Monster Nov 5, 2016, 8:29 am

      I couldn’t agree with you more. I always tend to want to spend more money on others than myself. Frugality can be difficult when it comes to gifts and giving. 🙂

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