Your Finances: 4 Emotional Decisions to Avoid
Personal finance concepts are generally straightforward and simple, but some people struggle with building a solid financial foundation when emotions get involved. Here are four ways people often act emotionally instead of logically that you should watch out for. (See also: Knowing Your Triggers Can Prevent Emotional Spending)
Changing Banks Because Everyone Else Is
The "it" thing to do these days seems to be changing your bank, but make sure that you are thinking things through before you act. Are you really paying anything for your account? You may not think that the banks are treating their customers fairly, but if you look at your statement and you never incur any fees, don't blindly go to a credit union and say "sign me up".
There are lots of reasons to jump ship, but make sure you know exactly how such a move is going to affect you.
Buying Stocks When They're High and Selling When They're Low
This is true even when we invest in index funds. Most people can't wait to deposit their money into their investment accounts when the market is doing well and dread the same process when market conditions seem tough. If you want to increase your return, why not put a bit more into the market on a down day and less when it's on an up day? Small differences like this may seem meaningless but will add up overtime.
Staying in a Bigger House Than You Need
During the housing bubble when home prices went up practically every day, many families decided to move into bigger and more expensive homes even if renting would have been the better choice. Whether they can or cannot afford the mortgage doesn't change the fact that the extra mortgage payment is coming out of money they could use for other things. Is that extra bedroom that you never use worth not being able to take a nice vacation with your family a few times a year?
Keeping Up With the Joneses
When a few of your neighbors change their cars, your car always seems a bit older. When a bunch of your friends shop for new clothes, it's seems natural that you would get something too. If all your friends get a drink during dinner, it's much more likely that you will just automatically think of something to order.
There are lots more examples. I highly encourage you to list your expenses to remind yourself how you end up spending emotionally, so you won't repeat the same mistakes again.
Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.
Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.