Money is an exchange instrument as well as part and parcel of the emotions, beliefs, and behaviors of people. It is critically important to include the psychology of money in everyday thoughts so that the reasons for poor decisions can be understood and avoided. This is what it looks like when it comes to investing your money in line with your emotions and how you can control your emotions.
The Emotional Brain and Money
We always tend to attach financial decisions with emotional feelings. The amygdala, which is the emotional centre of the brain, can really affect our money spenders, for better or worse, with the most obvious example being the impulsive spending. For example, every person enjoys a special occasion and buying presents for loved ones. The anticipation of such events is always good and causes release of dopamine, therefore making us fail to think of the long term in terms of finances.
Fear and Financial Decisions
The emotion of fear should not be left out since it cuts across every human being and affects their financial decisions. There are those who have fear of losing their money and so they take on high risks, for instance by putting their money in illegal businesses. Alternatively, fear of loss makes many people to be extremely risk averse which can cause them to fail in taking the required risks needed for growth. You have to accept that you have these fears because of their nature and how they affect the decision-making process.
Greed and Overconfidence
Greed can lead people to take unnecessary risks with the expectation of making huge profits out of them. This often results in speculative activities which are known to involve huge risks. The next bias, overconfidence, is very common and falls under cognitive biases. Individuals may underestimate the knowledge or skills required to make sound investments.
Herd Mentality
Another form of emotional behavior that impacts the decision making within investments is the social behavior of individuals. It is common to people to be swayed by others to purchase overvalued securities or avoid “safety” during panic in markets. This in turn leads to buying at the peak price and selling at the pit price, which is not the foundation of wealth creation.
Strategies for Managing Emotions in Financial Decisions
Awareness: One of the ways to control emotions is to understand them in the first place. Understand when you are being scared and when you are being greedy or being too confident.
Education: The need to learn about financial literacy plays an important role in reducing emotional decision making. A person would be able to make effective decisions with regard to investing, budgets and personal finance by having been acquainted with the basics.
Planning: It is quite understandable that a good and strict financial strategy is full of benefits since most people do not tend to change their opinions without enough reasons. What you have planned, stick to it however desperate the situation may seem.
Professional Advice: At times, it is also a good idea to consult a financial advisor. An outside party would make one more objective and help them to stay oriented towards details that are crucial over time.
Mindfulness and Reflection: Understand the importance and the cause behind your decisions and actions in terms of your finances. Mediation would help you get rid of negativity, which in turn would allow you to make better decisions.
Conclusion
Finance, it is said, is an emotion game. These emotions, as it would seem to most, will be controlled by some other factors that are specifically related to the psychology of an average person and are, in a way, looking for a solution for deeper problems. Keep in mind that the focus here is on making decisions that take into account your long-term financial targets and follow them rather than your momentary feelings and wants.
