Psychology of money

FINANCE: EMOTIONS CAN SABOTAGE FUTURE

- Hardi Swart

Money is rarely just about numbers. It's deeply tied to emotions – fear, pride, greed and even guilt. These emotions, while natural, can lead to impulsive or illogical decisions that sabotage financial well-being. Recognising the role emotions play in your financial choices is crucial to avoid costly mistakes and achieve long-term success.

Let's delve into how emotions influence decisions and explore ways to manage them effectively.

How emotions sabotage decisions

1. Fear

Fear of loss is one of the most powerful emotions in finance, often causing people to panic.

► Example: During a market downturn, fear may push you to sell investments at a loss, even though staying invested could lead to recovery.

► Impact: Panic-selling locks in losses and undermines long-term growth potential.

2. Greed

Greed tempts people to chase returns without considering the risks.

► Example: Jumping into speculative investments, like cryptocurrency or "hot stocks", without understanding the market.

► Impact: Greed-driven decisions can lead to heavy losses when the bubble bursts.

3. Overconfidence