At some point, everyone has been guilty of letting their emotions dictate their financial decisions. Think about it – you’re excited about a new party, so you decide to buy a new outfit, even though you have plenty of clothes in your closet. Or you’ve had a bad day at work, so you get takeout or grab drinks with coworkers instead of eating leftovers. Emotions can even be a deciding factor in bigger decisions, such as which house to buy or car to purchase.
While not always negative, these “emotional” financial decisions can add up and quickly derail your budget.
Let’s face it- who hasn’t made an impulse purchase based on a gut reaction that they have later regretted?
Here are two problematic emotions we often see as a financial planners and how you can prevent them from ruining your goals:
Optimism, often times expressed as “well that’s just because…” can result in some serious under budgeting, leading many people to wonder “where is all my money going”? We’ve seen clients try to rationalize a variety expenses as a one-time event, such as roof or home repairs, travel to an out of state wedding, car trouble or even a visit to the doctor. While these expenses may not occur every month, when accumulated over time, they can wreak havoc on your monthly budget and savings.
When you’re planning your monthly budget, try and calculate how much you really spend each month.
Sometimes this requires looking at expenditures from previous years to get a general idea how much you really spend each year on miscellaneous items. Once you get an annual amount, try and allocate a little bit each month to your budget so you will be prepared when you get the bill.
It can be difficult having the self-control to save for future goals. Even with the best intentions, we (and we include ourselves) often choose instant gratification over saving for our future. Admittedly, it’s easy to push aside our future goals when you are staring at the object you want to buy at this very moment.
To negate this emotion, reframe how you think about saving by visualizing how your actions today will impact your life tomorrow.
You can use our financial forecasting technology to input your financial goals to ensure your savings are on target. In addition, our financial forecasting can illustrate how an increase or decrease in your savings will impact your ability to realize your goals.
For instance, if you see that that by saving an extra $50/month you will have an extra $6,000/year upon retirement, would you choose to spend the $600 this year, or the $6,000 later? If enough emphasis is given to the future impact, most will choose the $6,000 later.
Managing your finances can be overwhelming, intimidating and scary. At Legacy Next, we believe that financial and investment decisions don’t have to be stressful. We want you to spend less time worrying about your finances, and more time focusing on what you love. See how we can help you today.