Finance Emotions

What on earth are finance emotions?

Loosely how I define what I do here is to analyse and explore with you what influence your emotions have on your financial decisions.

For instance, have you ever been faced with a financial decision that made no sense whatsoever but you still wanted to do it? Come on, you have probably spent that  extra on upgrading something when the base model was just as functional?

How about a financial decision that on paper made sense to do but  you still could not force yourself to do it for some reason? Perhaps holding onto an investment that has gone down in value because surely at some point it will bounce back?

What about a financial decision that someone else thought was the best thing for you? That no matter how you looked at it didn't seem right, but you still felt an obligation to do it? Sound familiar?

Well you are not alone. In 20 years of being an accountant I have seen people go through thousands of these financial decision predicaments.

These decisions would be hard enough to reconcile with if they were just on their own, with straight facts.  However, there is much more. Uncertainty, Timing, Opinion and Conjecture, and most of that is from other people let alone what is going on in your own mind!

Most people are going to have an opinion on what you should be doing with your finances. Whether it be overt or subtle, asked for or offered innocently. Then there is the media. Confused yet? Anyone else's viewpoint is just that. It is not tailored specially for you. It is influenced by their background, ideas and what they are feeling in that moment.

The trouble with any financial decision is that it is subjective, because beyond a basic level of functionality (eg you have a roof over your head your you don't) the type of roof you think you should have is completely variable, and does vary from person to person. There is no single right answer for everyone.

So who do you talk to about this stuff?

You may have an accountant or financial planner, mortgage broker or other adviser. Here's the thing - they are going to have all the same influences that your friends have when talking to you, allbeit with many years of experience, knowledge and skill.  The trouble with most of the advice given in these circumstances is that it is numbers and process driven, and it has be by regulation. However, I would almost guarantee that any situation you went to one of the above professionals with, it was not motivated purely by numbers. For instance, would you consider buying a rental property purely on the asset value, or would part of your motivation be extra security you felt that it would give you at some point in the future? Would selling an asset purely be motivated by the sale price or to feel better and reduce stress? It is not the numbers that give you those feelings, it is your perception of them that does that.

To summarise, in seeing most professionals you are going to get a numbers based answer to an emotionally driven problem.

So what makes me any different?

Well after I did a lot of study in what would seem a completely unrelated area to accounting and tax; in addition to working with peoples numbers I started to work with the emotional influences on their financial decisions, and that's when things started to happen! By asking non-numbers questions and understanding that emotions were going to influence, together with my customers we got to decisions that suited them. They may not have been answers that suited everyone, but they suited them.

So what if, with absolute certainty, we could work out what the best approach to a financial decision would be for you, as well as getting your numbers right?

That's what I can do.

Thanks for reading.