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Taking your feelings out of financial decisions

John Kirby

Even leaders are human. We experience emotions just like everybody else. But it’s particularly important to keep a close check on our mental state when we’re making key decisions on financial matters, writes Peter Daisyme for Entrepreneur.

Feeling angry, frustrated, worried, disappointed or irritated – whether professionally or personally – has an effect on your thoughts and deeds. Sometimes those emotions can lead to positive action, but this is rarely the case with financial choices.

“If you let your emotions control financial decision making, you will lose out almost every time,” says Daisyme.

He cites studies by academic researchers that show how anger fuelled by a totally unrelated incident can influence our judgments, particularly our evaluation of other people’s suggestions.


So how can you contain your emotions while tackling financial choices? Daisyme has put together these six tactics:

1) Define your goals. Without clear financial targets, you leave yourself wide open to emotional influence at every turn. Taking time to establish a strong structure will help to keep your mind acutely focused.

2) Resolve to quit while you’re ahead. Wanting to keep pushing for more gains is a natural reaction when the going is good. But this is not always the best move; even small misjudgments can make the difference between success and failure on a day-to-day basis:

“Whether you’re day trading or running your company’s finances, establish principles that tell you when to move on. This removes emotions from the process and improves decision making even when the adrenaline is pumping.”

3) Don’t feel sorry for yourself. When the going gets tough, self pity can be quick to kick in – and that often leads to critical financial mistakes. When you start hearing yourself say that you “deserve” the thing you want to spend money on, consider that you might have underlying feelings of anger or frustration to address before making a decision that could end up harming your business.

4) Stop and breathe. Taking a deep breath won’t solve your dilemmas, but it will calm your emotions. When you are feeling stressed about a financial decision, step away from the figures for a few moments. Breathe slowly and deeply to calm your nerves and equip yourself to make less emotional choices. Think of it as putting on the brakes as you hurtle down the motorway.

5) Acknowledge what prompts an emotional reaction. Knowing your triggers will help you to avoid being swamped by negative feelings. For instance, if reviewing your profit and loss account on your own first thing in the morning sets you up for an angry day, tackle it later on in the company of colleagues your trust.

6) Choose complementary close companions. The personalities of the four or five people you most frequently surround yourself with is key to your company’s financial success. Aim to find a balance of well-focused characters, with positive traits that can counter your own negative ones. If you are a natural pessimist, choose optimistic people; if you are easily stressed, calm folk will help you make better-reasoned decisions.

Keeping emotions in check isn’t easy, and you won’t always succeed – even after years of practice. But simply being aware of their impact, and trying these simple preventative measures, is a great first step towards better financial decision making.

Source Article: How To Avoid Letting Emotions Control Financial Decision Making
Author(s): Peter Daisyme
Publisher: Entrepreneur