In our recession state of affairs, it often pays to cultivate calm before making financial decisions.
Envisioning your goals and sharing them with others can help you overcome the money emotions that might prompt detrimental financial decisions.
Neutralizing emotions is a key aspect to a healthy financial life. We continue to see fear and greed motivating and driving a lot of our financial decisions, and generally neither one is a good thing.
The way to counter those money emotions is to come up with a plan you can turn to when you are tempted to make more emotional or fear-based monetary decisions. The key is to have some sort of a plan, be it travelling to Venice in a couple of year’s time or retiring by a certain age. A lot of people don’t even know what their goals are and so once they can define a goal, then they can start to look at things more logically because they have something objective to aim towards.
People going through major life stresses, like divorce, can often benefit from an adviser who can help them deal with their new financial reality. The best thing that these advisers can do is to highlight the fact that these money emotions are normal and a natural response. This enables the individual to address them, and stop them from making bad emotional & financial decisions.
Here are some tips on how to keep your emotions under control when managing your money:
- Visualize. Focusing on a visual image for your goal, whether it’s a house you want to buy or a holiday destination you want to visit, makes it easier to stay focused when it comes to daily temptations that could derail your savings goals. You can carry a picture around in your wallet, or create a digital vision board and set it as your computer or phone’s background image.
- Talk to your partner. Spouses or partners don’t always realize they may differ on their long-term goals, which can create financial conflicts when it comes to everyday spending. The key is to work through those differences, either independently or with a financial professional to come up with a shared vision. Or who knows? Maybe share in both your goals.
- Know how much you’re spending. You can’t start planning for your long-term goals until you know where you are financially today; people tend to grossly underestimate how much money they’re spending.
- Do a “brain dump.” To help figure out what your long term goals are, as well as those of your significant other, sit down with a notepad and write down all of your goals and aspirations. People more than often not end up spending more time planning their next holiday than planning for their retirement. Don’t make the same mistake, instead take the time to make a plan and constantly update and tweak.
- Share your goals with others. Research has shown that people, especially young people, benefit from sharing their goals with others in order to get their encouragement and support. We test our decisions with friends and benefit from their feedback.