Do you ever hear something on the news or have something happen in your everyday life that pretty much instantly puts you into a panic? I do. For me it can even be something ridiculously trivial, such as finding out that the bus I’d planned on taking doesn’t leave every hour like I’d thought.
In my head I think “Oh no! That’s going to mess everything up! What will we do for the two hours we’ll have to wait before we can even get going?!”. Fortunately, despite overreacting to even silly stuff almost instantaneously, I also usually head in the opposite direction immediately afterward.
“Oh no! The world is ending because the schedule isn’t perfect!” becomes “Oh well, it’ll work out and we’ll find something to do” five seconds later. And if it’s a big thing, I take some time to think things over, plan out alternatives that might work out, and analyze their potential impact — once I get done with my little internal fit.
In other words, I’m not usually reactionary for very long. I just have quick little mini-freakouts in my head. But if I were, it could have a bigger impact. Especially on my money.
It’s important to know yourself and how you usually act when confronted with something you see or hear.
Being reactionary can lead you to do things with your money that aren’t in your best interest. Let’s take investing, for example. If a headline like “Dow drops 200 points!” results in your selling your stock, only to rebuy it again a while later when the “Dow hits 10,000!” headline appears, you’re probably reactionary. And of course, sell low, buy high = not so good. You want to do the opposite.
If you’re reactionary…
If you know that you are reactionary, you can build in safeguards or set rules for yourself that will give you some extra time to think things through before taking action, whether it’s on investments or anything else. Remember that there really aren’t that many things in life that have to be decided and acted on immediately or else.
Consider enforcing a waiting period of 24 hours (or x number of days, whatever works for you) before finalizing important decisions.
If you tend to focus in on the little picture (“Gas prices went up again! I better sell my SUV!”) without thinking of the big picture (your SUV is a second car that you only drive on weekends), remind yourself to take a step back and list 10 possible results of your decision before acting.
Or, in the case of investing, consider having your investments handled by a professional who can be a voice of reason if you’re about to panic or buy at inopportune times.
If you tend to under-react…
Of course, the opposite can be true as well. You could be someone who tends to under-react, maybe out of fear of making the wrong decision or just plain old being busy with other things. In that case, consider implementing similar safeguards or rules for yourself — just make sure that they give you a time limit within which you’ll need to take action instead of enforcing a waiting period. If that doesn’t spur you to action, remember that not making a decision is a decision in and of itself. It’s just one that’s less likely to turn out the way you want.
In either case, knowing yourself — and then taking appropriate steps — is key to maintaining balance and getting what you want financially.
So what about you? Are you reactionary? Someone who tends to under-react? Or somewhere in the middle?Posted in Emotions & Money, Investing on 08.01.12 with 6 comments.