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We’re all Biased Toward our Own Money. Here's What We Can Do About It

In one way or another, we all have a complex relationship with our own money. Because of that, it’s hard to be rational all the time in how we use it. But where do our behavioral biases come from and what can we do to counteract them? 

Behavioral Biases

Many of us set budgets, monitor our investments and spend conservatively. In doing so, many of us like to think that we are acting rationally with our money. But the truth is, people are emotional when it comes to their finances and that can affect their decision-making.

Common emotions that influence how we spend and invest can include:

  • Fear
  • Guilt
  • Shame
  • Envy
  • Hope

Excitement

In terms of investments, this could lead to decisions that impact your portfolio in the long run as mentioned in the last blast. For example, you may choose to “follow the crowd” due to fear of missing out or sell shares impulsively when stocks start trending down.

Emotional spending (sometimes nicknamed “retail therapy”) is another common practice influenced by behavioral biases. When you’re unhappy or upset, buying something new can make you feel better, at least momentarily.

You’re not alone in your behavioral biases and you can take action to change those things that may be impacting your financial security.

What Not to Do:

Although it may be tempting, avoid making rash investment decisions based on what you see in the news or hear from friends and family. 

What Can You Do Instead:

Have a conversation with you Curran Private Wealth Manager

If you know that planning your future spending and managing investments tends to be dictated by your emotions, consider an unbiased third-party professional to guide you through investment decisions and other aspects of your financial life.

Think Long-Term

At Curran we emphasize long term because we believe data shows that it works. Our Private Wealth Managers are here to guide you when you may be feeling uneasy. That’s their job!

Check in with Yourself

Being self-aware is an important step in avoiding behavioral biases when it comes to investing. Know your level of risk tolerance (or have a conversation with one of our professionals to help determine your risk tolerance) and allow that information to help determine your asset allocation strategy. Doing so should help alleviate some worry regarding your investments and reduce the urge to make choices impulsively. 

Acknowledging and controlling your behavioral biases can help you feel confident in your investment decisions and everyday spending choices. Working with a trusted financial advisor allows an objective third-party to offer educated guidance and direction without emotional bias.

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The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.