5 Ways Emotions Can Negatively Impact Your Financial Decisions

August 24, 2015

Connect Member

Empowering savvy women to become the CFO of their lives via proactive planning & wealth management.


Have you ever purchased something in the spur of the moment and realized when you made it home that you didn’t really like or need it? Everyone wants to make smart financial decisions, but unfortunately sometimes emotions can get the best of people in the heat of the moment, having a negative impact on their long-term financial situations.

The following are common mistakes people make by allowing emotions to get in the way of financial decisions:

1. Ignoring financial issues: It is important to address financial issues, such as increasing debt, as soon as they occur. Ignoring these issues can have a negative impact on your financial picture the longer you avoid addressing them instead of facing them head-on.

2. Procrastinating on financial decisions: One of the main obstacles to planning effectively for your long-term financial goals is procrastination. People sometimes have a tendency to put off making important financial decisions due to a lack of confidence. Typically, this low financial self-esteem is due to the fear of making a mistake. In this situation, you can easily overcome this obstacle by educating yourself. Enroll in financial classes or workshops. If you need more guidance, consider hiring a financial planning professional so you can put that fear aside.

3. Doing things the same way you always have: People have a tendency to do things the same way they always have because they are uninformed or afraid to make a change. Reading financial magazines and visiting financial websites will increase your overall awareness and knowledge, making you more comfortable to make a change in your financial habits.

4. Letting short-term market volatility interfere with your investment plan: When creating your investment strategy, it is important to have a long-term perspective based on your goals and risk tolerance. This way, you will not be tempted to sell investments at the wrong time in order to make a quick dollar (or take a loss) that could hurt your big-picture financial situation down the road.

5. Not asking for help: Trying to do it all yourself could be a big mistake. If you feel you are overwhelmed or in need of additional expertise, you may consider hiring a professional. A financial planner or investment professional can create a strategy to help you achieve your long-term financial goals.

Do any of these mistakes sound familiar to you? If so, the good news is by recognizing and understanding these emotions, you can take control of the situation and avoid making poor financial decisions that could negatively affect your financial future. The next time you make a decision about your finances, stop and ask yourself, “Am I making this decision based on sound information or am I allowing my emotions to get in the way?” If you are allowing the latter to occur, educate yourself and ask for help. Your future self will thank you.

Pamela Plick is a member of the DailyWorth Connect program. Read more about the program here.