Why we make money mistakes, and how to avoid them

THE trajectory of one's life is closely linked to the quality of one's financial decisions. More often than not, our circumstances mirror the decisions we've made, both good and bad. And yet, making sound financial choices is not always as simple as it seems. With this in mind, let's unpack some of the underlying factors that drive us towards poor financial decisions.

- SHERRY TAPFUMA

The role of emotions: When it comes to behavioural finance, fear and greed are often singled out as the main culprits of bad money decisions, but they are by no means the only ones. Anger, such as that experienced during a bitter divorce, can drive spouses to make shortsighted choices that jeopardise their long-term stability.

Feelings of sadness or emptiness often manifest in so-called 'retail therapy,' where unnecessary spending serves as a temporary emotional balm. Envy, too, plays its part, prompting people to overspend in an effort to keep up with others. Further, depression has been strongly linked to debt, with many feeling trapped, helpless, and unable to take decisive action. In our experience, emotions influence wealth creation far more than most people realise, and as such, recognising and managing our emotional biases should be a priority.