The Psychology Of Good And Bad Financial Choices.

As much as i hate to admit it, most of the choices we make are not based on logic.

The truth, according to research, is that most of the choices we make are based on emotion.

Now, if that’s the case, how do we protect ourselves from making bad choices?

I am not immune to making bad choices. When I look back o the poor choices I’ve made, the one thing I would learn how to do if I were able to do things over again is remove the emotion.

Sounds very easy.

But in real life, it can be pretty difficult to do.

In my opinion, one of the reasons it’s so hard to implement is that bad choices tend to feel good, while the best choice is usually boring and makes you feel like you’re depriving yourself.

For example, if you experience a financial windfall…buying a new car or taking a vacation may be at the top of what makes you feel the best.

However…the wise choice would be to pay off credit card debt, add money to your rainy day fund, and invest the rest.

Now to me, that sounds absolutely exhilarating. The idea of building my net worth tends to make me feel that way.

Here’s another example. If I have money to invest, my initial inclination is to buy shares in a shiny new company I don’t already own.

That may be the sexy choice.

But it’s not the best choice.

The best thing to do in that case is to add to anything I already own that’s a winner.

One of the most powerful investment tactics you can use is to add to your winners.

Investing is hard on your emotions, as well as your psyche.

However, the best decisions we can make are those that eliminate the emotion by simply doing what is the smartest.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

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