We all do it. Whether your personality leans more toward the saver or the spender, its very hard to consistently remove all emotion from financial decisions. Part of this can be explained by how our brains are wired. Some more can be explained by how we were raised, and our financial life experiences fill in the rest.
I meet widows who feel the need to give large amounts of money to their children, without concern for their own well-being. I meet parents who have the desire to indulge their children, at the risk of creating dependency. I meet pre-retirees, who want income now, without regard for how long their money may need to last. So, how can you avoid making emotional financial decisions? Here are a few ideas to get you started:
1. Become aware. In our credit and debit card swiping world, it is easy to buy things and immediately forget how much money weve spent. Its like using invisible cash. Studies have shown that the best thing you can do is use actual cash, as handing over real money makes you think twice about a purchase. But, that may not be totally realistic.
The next best thing is to track every penny you spend by hand. Get a small notebook and start jotting purchases down each day by category. If you do this, two positive things will happen. You will create a new habit of awareness in your mind that will help you make better financial decisions, and you will see where your money is actually going.
2. Slow down. Have you ever noticed that in the past, when you were pressed to make a quick financial decision, it didnt always work out? This is why some salespeople use time pressure -- they want you to act before you have time to think. What if you waited 24 hours before making a major purchase? What if you agreed with your spouse that you would talk about every spending purchase over a certain dollar amount (such as $50 or $100) before spending? How else could slowing down help you save money? Slowing down to plan meals, instead of hitting a drive-through would definitely help you save. The more you slow down and prepare, the less you will have to react and the better the outcome.
3. Ask why. Why do you buy the things that you buy? Why do you give the money you give? Are there emotional reasons behind your spending? Asking why can definitely help you make better financial decisions that involve family members. You feel like giving money to, or buying things for your adult children. Why? You want to indulge your grandchildren. Why? What are you expecting this spending to create? The combination of money and relationships can be detrimental, and they need to be separated. Showing someone that you love them, for example, shouldnt cost a dime.
Sherri Goss is vice president of Rosenberg Financial Group Inc., with offices in Macon and Warner Robins. Contact her at 922-8100 or email@example.com.