If there’s one truism when it comes to your money, it’d be not to let your emotions get the best of you: You don’t want to sell when the market’s tanking, splurge on something you can’t afford when you’re in a bad mood, or continually give money to a loved one with no strings attached.
But giving into your emotions can actually be a boon to your finances in the right circumstances. Here’s why.
When you’re emotional about something, that tends to mean you care. And research indicates that people tend to make decisions based on our emotions, even when we theoretically know better. So why not harness that? Rather than focus on arbitrary goals and measures of success, consider what matters the most to you, and use that to chart your financial course.
And as Carl Richards, the Sketch Guy, wrote in The New York Times back in 2013, sometimes hard numbers just don’t support what’s most important to you. For example, setting aside more money for retirement and concurrently lowering your tax bill may be the most prudent move on paper, but it doesn’t take into account your other goals, such as buying a house (definitely no longer the “best” investment) or taking your dream holiday.
Do you want to start a small business? Open a separate high interest savings account specifically for that goal, and give it the name of your company-to-be. Seeing that and visualising your business will certainly be more inspiring than inputting a goal in an Excel sheet.
“One of the biggest reasons we misbehave is that we react solely to emotion instead of considering the facts. But the opposite is true, too,” writes Richards. “When we consider only the facts and don’t take the time to understand our emotions, it can lead to regret and make it difficult to behave.”
As Richards writes, when we just take the facts into account, we don’t anticipate how we’ll feel about our choices — we need to think about our decisions both financially and emotionally. You don’t want to set aside X per cent of your salary each month just because “that’s what you’re supposed to do” at the expense of your emotional well-being.
Obviously you should save, but also consider the opportunity cost from an emotional and financial perspective.
There’s more to life than figures on a piece of paper.