Your Finances: 4 Emotional Decisions to Avoid
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Alex Valli Personal finance concepts are generally straightforward and simple, but some people struggle with building a solid financial foundation when emotions get involved. Here are four ways people often act emotionally instead of logically that you should watch out for. (See also: Knowing Your Triggers Can Prevent Emotional Spending)
Changing Banks Because Everyone Else Is
The "it" thing to do these days seems to be changing your bank, but make sure that you are thinking things through before you act. Are you really paying anything for your account? You may not think that the banks are treating their customers fairly, but if you look at your statement and you never incur any fees, don't blindly go to a credit union and say "sign me up".
There are lots of reasons to jump ship, but make sure you know exactly how such a move is going to affect you.
Buying Stocks When They're High and Selling When They're Low
This is true even when we invest in index funds. Most people can't wait to deposit their money into their investment accounts when the market is doing well and dread the same process when market conditions seem tough. If you want to increase your return, why not put a bit more into the market on a down day and less when it's on an up day? Small differences like this may seem meaningless but will add up overtime.
Staying in a Bigger House Than You Need
During the housing bubble when home prices went up practically every day, many families decided to move into bigger and more expensive homes even if renting would have been the better choice. Whether they can or cannot afford the mortgage doesn't change the fact that the extra mortgage payment is coming out of money they could use for other things. Is that extra bedroom that you never use worth not being able to take a nice vacation with your family a few times a year?
Keeping Up With the Joneses
When a few of your neighbors change their cars, your car always seems a bit older. When a bunch of your friends shop for new clothes, it's seems natural that you would get something too. If all your friends get a drink during dinner, it's much more likely that you will just automatically think of something to order.
There are lots more examples. I highly encourage you to list your expenses to remind yourself how you end up spending emotionally, so you won't repeat the same mistakes again.
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You bring up a good point about staying in large homes. I think another pressure out there right now is that because interest rates are low people think everyone should be buying. I hear it all the time "Now is a great time to buy." This is making people think that they are missing out. But the truth is, some people should not be buying. Low interest rates and low prices do not mean that buying is right for everyone.
It is interesting what you said about buying a home. My husband and I were going to buy this past year but, decided to put it off and continue renting.
"Keeping up with the Joneses" seems like the biggest flaw in our society today (or at least where I live). Our population is becoming more and more about materialistic goods and outward appearance, even during this time where many people cannot afford the best or newest version of something. But spending extra cash on "looking good" is the dumbest thing we can do during this economic crisis. Why spend your pay check on new shoes because you have a party to go to, when you could have just borrowed a pair from a friend if you didn't have any you wanted to wear. I've had the same wardobe for almost 3 years now because I refuse to spend the little money I have, on superficial nonsense. I think MANY people would be in less debt if they stuck to this rule.