How to keep emotion out of financial decisions

The last two years of global uncertainty, specifically the last few weeks of stock market fluctuations following Russia’s attack on Ukraine, may have you feeling tempted to alter how you spend your money on a day-to-day basis or make changes to your investment portfolio. What experts have told us time and time again is that you should never react emotionally – it’s rather the foundation you lay before a crisis and the response you plan for after (when you have time to think rationally) that are the most important. Sounds simple enough, but how do we remove emotion from financial decisions?

First, it’s important to understand how our emotions can be involved in the decision-making process. We recommend you refer to an earlier article on understanding your money mindset – where we explored how financial decisions are dependent on your lifestyle and goals, swayed by mental and emotional influences like stress and your money mindset. It’s at these points in which our brains also have the tendency to jump to conclusions or fall prey to confirmation bias or loss aversion. So, what can we do to help ourselves weather emotional storms without reacting out of fear, shame or anger?

The first step we encourage here at Gilkison is to shape your environment (and financial foundations) to empower you to make better choices throughout day-to-day life, not just when unprecedented events occur. Over the last 40 years, we have observed a great deal of concern from our clients that they will not achieve their goals in life. It may seem an oddity, but many of these people were not able to articulate their goals clearly or concisely. Hence why our work predominantly begins by defining your goals, to make it much easier to objectivise the actions required to achieve them. Part of the difficulty with setting goals is that two things will always change: the value of your resources and your objectives in life. In response to this, rather than taking positive action, we find most people get stressed, worry, and freeze in fear.

To avoid getting stuck in the fear of not getting what they most want we recommend our clients foster financial success by implementing structure. This is where lifetime cash flow mapping becomes a very powerful decision-making tool and guide for balancing present consumption with future consumption. By creating boundaries for decision making, it’s simple for our clients to stick to their individual plan and enjoy the sense of freedom and elation that comes with such clarity.

Whilst it’s only human for our clients to present with the same initial concerns as everyone else when an unprecedented event occurs or inflation increases, they are empowered and don’t react emotionally. The reassurance that comes from a third party’s expert advice alleviates the potential knock-on effect of emotional reactions and reaffirms why we’ve put the investment structure we have in place. Hearing that our clients are absolved of fear and worry, and instead feel empowered in their financial position and free to continue enjoying their Rich Life continues to be rewarding for everyone here at Gilkison.

If the value of your resources or objectives in life have changed since we spoke last, or you’ve felt emotion creeping in during these times of increased uncertainty and would like to review your cash flow, please reach out to your adviser for personalised assistance that will have you feeling empowered once again!