Do you know the most dangerous time for your money? The time when you’re most likely to make decisions that will literally cost you cold hard cash? It’s simple: whenever you’re emotional.
Grace under pressure?
Stress is a huge trigger. Most of us are not poster children for “grace under pressure”. We may continue on and function pretty well, but when we get stressed we just don’t think as clearly as we otherwise might. Especially if it’s long term stress, which is often accompanied by a lack of sleep — another thing that makes thinking clearly difficult.
Stress can come in many forms. It could be health-related, have to do with relationship issues, or come from job pressures. It can even come from irritating things that happen over and over again, such as a car breaking down repeatedly. Ironically, it’s often due to money troubles. All of those things can lead to poor decisions.
We may spend more than we ought to, because we want to make a problem go away. This is especially true in the case of emergencies, where we don’t feel like we have any other choice. (We forget that there are usually other options.) We may also spend money because we’re tired, or because we want to cheer ourselves up.
Other emotional triggers
The poor decisions can come from other kinds of emotion too. Fear and greed are big ones. When we’re fearful or greedy, we’re also vulnerable to being taken advantage of, and to being blinded from the truth. Basically, just as with stress, we either don’t stop to think things through or ignore red flags because our emotions have got the better of us. All of that can cause us to lose money.
Avoiding the danger zone
So what can you do to avoid overspending or losing money due to emotional situations?
Just being aware that it can happened will help. Forewarned is forearmed. Sticking to the 24 hour rule is a good idea, too. That’s where you wait at least 24 hours before making any big decisions; giving you time to clear your head, think more rationally, and investigate options.
It also helps to actively plan out what you might do during common situations, and to prepare. For example, do you have an emergency fund? Do you have savings for car repairs? Medical and other insurance? If not, start to get your financial house in order today. Speaking of houses, if you own a home, even a list of reliable repair people that you’ve taken the time to vet now (when you don’t need them) can help you avoid being fleeced when you do.
Your money doesn’t have to be in danger. Do what you can to avoid the danger zone, and you’ll be better off for it. You’ll also end up with more cash in your pocket than you otherwise might.Posted in Emotions & Money on 04.17.13 with 7 comments.