Financial Decisions

Mental Health Blog | Sept. 7, 2021 | Jeremy Waller, MBA (Marketing and Community Outreach Manager – Behavioral Health)
Introduction – The Mighty Dollar

Michael Douglas’s Gordon Gekko in the 1987 hit Wall Street left us with some of the most memorable lines in the history of cinematic vernacular…

“Money never sleeps, pal.”

“Greed, for lack of a better word, is good.”

In The Wolf of Wall Street DiCaprio’s Jordan Belfort cashed in big time and rode a proverbial tidal wave of financial prosperity through his bets on penny stocks.

On any given evening millions of American living rooms are illuminated by the glow from reality TV shows.

Many of these series give viewers an inside look into the lives of the rich and famous.

So…Gekko, the Wolf and reality TV. What do these three have in common? Cash money!

Why does that matter though? Because popular culture matters; it’s a mirror that reflects what a society values.

You can easily determine a culture’s anxieties, dreams, hopes and fears by giving a cursory glance at the leaves of its books, the notes of its music, and scenes of its films.

Therefore, if American pop culture is any indication we sure love the mighty dollar.

Any why wouldn’t we? Commerce and enterprise virtually built our nation, and while money isn’t always everything financial freedom is important.

Financial decision making is saturated with an abundance of psychological considerations.

However, sometimes a love of money, and all that goes with it (power, wealth, prestige, status, leisure, freedom, etc.) can get the better of us.

Emotions can easily topple even the most financially astute from the most secure of financial pedestals.

Also, while there are certainly many extenuating circumstances that impact wealth, bad money management and undisciplined spending are some of the most common ingredients of financial instability.

This is because financial decision making is saturated with an abundance of psychological considerations.

In fact, the psychology behind purchasing decisions, branding, money management and financial lifestyles is at once complex and multifaceted.

So yes, money is important, but it’s important that we slow our roll just a little and make sure that we’re keeping our emotions in mind when it comes to our finances. Our wallets, investment funds and families will certainly thank us for it.

The rest of this month’s article focuses on how emotions impact financial decision making. It also presents 4 tips to help you make emotionally sound financial decisions. Let’s jump in!

Tip #1 – Curb Your Enthusiasm

The Intelligent Investor by the late great money mastermind Benjamin Graham, is the most successful and acclaimed investing volume of all time.

First published over 70 years ago, it has not only remained in print but is widely recognized as the de facto magnum opus on investing. Its, as they say, “textbook.”

However, while Graham’s book goes into great detail on a variety of financial topics, the common theme in the book, and the best tip he has for being an “intelligent” investor is to not let emotions get the better of you.

Benny was all about disciplined money management and you know what? He was onto something.

Graham understood that the majority of purchasing decisions are made for emotional reasons. From stocks to handbags, to phones to cars, we tend to base what we buy on how we feel.

In fact, buying things is a far more personal thing than we realize. Even small purchases can be made for some pretty deep reasons.

I buy a certain watch for example because of its quality. It will last longer and I’ll save money in the long run (pragmatism).

I buy a new video game console because it lets me associate with a community of like-minded individuals (belonging).

I eat at a specific restaurant for its comforting atmosphere and equally comforting food (security and familiarity).

I donate to charity because I want to give back and help others (altruism).

I splurge on a jacket because I deserve it and want to “live a little” (rewards and recognition.) The list goes on.

When it comes to making purchases, remember…emotions go up and down, but your bank account can only go down when you buy something, it’s that simple.

Companies invest billions each year into strategies to get you to buy their products and services.

In fact, check out this list by the Harvard Business Review about types of brand leverage companies use to woo consumers.

Now, I have a business degree and I actually like branding, and it’s not wrong for companies to market their brands in compelling ways, nor is it wrong for consumers to buy what they want based on feelings.

Moreover, feelings will always play a role to some degree when it comes to what we buy.

However, millions put themselves in precarious financial positions when they base their purchasing decisions solely on impulse and emotion.

When it comes to making purchases, remember…emotions go up and down, but your bank account can only go down when you buy something, it’s that simple.

The next time you’re faced with a purchase, be aware of your emotions and reasons for why you’re considering buying something.

Tip #2 – Be Wary of Retail Therapy

We’ve all done it. We go on a shopping binge to take a load off. We call it “retail therapy.” It makes us feel good and (speaking from experience) it does work.

But…going shopping, while fun and worthwhile, can become problematic when it’s used primarily as a way to alleviate life stressors.

Money is good for a lot of things, but its not always the best medicine.

Those who routinely spend money on things they cannot afford or that they do not need can do so to fill a void in their life. Spending for them can become a diversion.

The problem is that the rush of good feelings people get from a purchase decreases with each subsequent purchase.

Money is good for a lot of things, but its not always the best medicine.

So, people often buy more lavish items or just more to keep the rush coming. The result? You can wind up spending what you don’t have and getting in debt.

This means that even small “splurges,” if done continually, can easily place you into a debilitating financial scenario.

Be wary of retail therapy. The next time you’re about to make a big purchase out of nowhere, or are about to splurge or go on a shopping spree, ask yourself why you’re really buying the things you are buying.

Again, keep emotions front and center and just be careful.

Tip #3 – Wait a Day

If emotions are getting the better of you when it comes to a purchasing decision or you’re on the fence regarding a purchase, take a day and wait to see how you feel about the decision in the morning.

This can be hard because we tend to make choices for the immediacy of their benefit.

For instance, most people, if told they would be given a dollar today or ten dollars in a month, would take the dollar even if waiting meant obtaining a greater return.

When in doubt about a purchase, sleep on it. Don’t get buyer’s remorse!

Nevertheless, patience is a virtue when it comes to financial management and growing wealth in particular.

Impulse buys, keeping up with Joneses, and treating yourself can become detrimental to long term financial success.

Now, this doesn’t mean you shouldn’t enjoy your money or have some fun. Again, just be sure to keep your emotions in perspective.

When in doubt about a purchase, sleep on it. Don’t get buyer’s remorse!

Tip #4 – Let Your Future Guide Your Money Habits, Not Your Past

Many make financial decisions based on their upbringing or past situations.

Those who grow up in environments where money is no object can easily cultivate undisciplined spending habits later in life. Yet, the reverse is just as true.

Those whose formative years are spent in poverty can easily subscribe to a financial survival mindset throughout their lives.

Even when they become wealthy fears and anxiety about reverting back to state of being impoverished can quickly take over and cloud their financial decisions.

In such scenarios people live far under their means and do not enjoy life nearly as much as they ought to.

Let your dreams and goals for tomorrow guide your spending habits today.

Balance is key here. Don’t let your financial past dictate your financial future.

Live in the moment, enjoy it but also keep the future in perspective.

When it comes to money, remember, you’re in it for the long game. You want to live a prosperous life, not just in the here and now but tomorrow too.

Let your dreams and goals for tomorrow guide your spending habits today.

Conclusion

In this month’s article we looked at the psychology of financial decision making and outlined 4 tips for making emotionally sound financial decisions.

First, we looked the importance of keeping emotions in view when faced with purchasing choices.

Emotions go up and down, but your bank account can only go down when you buy something. Therefore, the next time you’re faced with a purchase, be aware of your emotions and reasons for why you’re considering buying something.

Second, we learned the importance of not allowing spending to become a form of therapy. Money is good for a lot of things, but it’s not always the best medicine.

Third, we saw how patience is a good call when you’re on the fence about a financial decision. Wait a day, and sleep on it. Avoid succumbing to buyer’s remorse.

Lastly, we discussed how to look at the long game when it comes to money management, and the importance of not allowing your past to dictate your current and future spending habits.

If you’ve been experiencing anxiety, stress of any other challenges related to the things discussed in today’s article, we encourage you to reach out to us for help.

To make a referral or for more information email [email protected] or call (407) 215-0095 option 2.

Subscribe to our email list to be notified of future blog articles!