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Are Emotions Driving Your Decisions?

May 13, 2024

Posted in Behavioral
Activate Your Wise Mind to Navigate Financial Decisions

Financial decisions are rarely made in a vacuum. We often seek input from a loved one, business partner or advisor on major financial decisions. It’s also important to acknowledge that we bring more than one mind to our financial and life decisions. The choices we make, whether they’re as routine as daily spending or as significant as long-term investment strategies, are influenced by an interplay between our emotional and rational minds.

Clients often seek our guidance to manage the two contrasting mindsets when weighing their options. How conscious are you of your emotions when faced with a big decision?

Find the Intersection of Emotions and Data

Understanding how to leverage the intersection of your Emotional Mind and Rational Mind to help you achieve a Wise Mind is useful when you’re faced with major decisions. Let’s delve into how to identify which mind you’re using, what triggers emotional responses, when rationality takes over, and most importantly, how to reconcile the two to make informed financial decisions.

The Three Minds

Emotional Mind: This is where decisions are guided primarily by feelings, desires, and instincts. Emotional triggers may include fear, excitement, or the need for instant gratification. When making financial decisions from this standpoint, you might prioritize short-term gains or seek relief from discomfort without considering long-term consequences.

Rational Mind: In contrast, the Rational Mind relies on logic, analysis, and facts. Decisions made here are often based on careful consideration of pros and cons, cost-benefit analysis, and future goals. However, relying solely on rationality can lead to overlooking emotional needs or failing to acknowledge the human element in financial choices.

Wise Mind: An ideal state lies at the intersection of Emotional Mind and Rational Mind. Wise Mind combines the intuitive insights of emotions with the thoughtful analysis of reason, resulting in decisions that are both prudent and fulfilling – and get you closer to your destiny – in the long run.

Recognize Your Emotional Triggers

Understanding what sparks (or prompts) each mindset helps manage your responses. Emotional triggers may include unexpected expenses, market volatility, excitement/anticipation, social pressures, or the noise in our minds. On the other hand, rational responses may be prompted by structured financial planning sessions, consultations with professionals, saving money or the need to adhere strictly to a budget.

Example: Purchasing a Car

Let’s consider the decision to buy a car and how different mindsets approach this decision.

  • Emotional Mind: An individual operating from an Emotional Mind might walk into a car dealership feeling excited and exhilarated by the prospect of driving a new vehicle. They may be drawn to the latest model with all the bells and whistles or safety features, envisioning how it will be easier to park with a backup camera and bring them joy. Despite knowing the purchase will stretch their budget, they feel a strong emotional pull and decide to buy the car impulsively, prioritizing immediate gratification over long-term financial considerations.

  • Rational Mind: On the other hand, someone approaching the decision from a Rational Mindset would conduct thorough research, comparing different car models, assessing their features, and analyzing their financial situation. They would consider factors such as fuel efficiency, maintenance costs, resale value, and affordability within their budget. After careful deliberation, they might choose a reliable and cost-effective vehicle that meets their practical needs, even if it lacks some of the extravagant features of other options.

  • Wise Mind: In contrast, an individual in a Wise Mind state would acknowledge their emotional desire for a new car while also considering the facts. They might recognize the importance of transportation in their daily life and the emotional satisfaction that comes with owning a reliable vehicle. However, they would also weigh the financial implications of the purchase, considering their long-term financial goals, such as saving for retirement or a down payment on a home. In the end, they might opt for a compromise, choosing a moderately priced car that strikes a balance between functionality and affordability, ensuring they satisfy both their emotional desires and financial responsibilities.

In this scenario, the decision made with Emotional Mind in the lead prioritizes short-term emotional satisfaction over long-term financial well-being. The decision made with Rational Mind focuses solely on practical considerations, potentially overlooking the emotional significance of the purchase. However, the decision made with Wise Mind integrates both emotional and rational factors, resulting in a choice that aligns with both immediate desires and future financial goals.

Transitioning to Wise Mind:

Achieving a Wise Mind involves deliberate effort to balance emotional impulses with rational analysis. Here are tips to help you navigate this process:

  • Pause and Reflect: When faced with a financial decision, take a moment to pause and identify your current mindset. Are you reacting emotionally or analyzing the situation logically?

  • Consider the Long-term Impact: Ask yourself how your decision aligns with your long-term financial goals and values. Will it bring you closer to where you’d like to be?

  • Seek Input from Trusted Advisors: Consult with financial planners, mentors, or trusted friends and family members who can offer objective perspectives and insights.

  • Practice Mindfulness: Cultivate self-awareness and mindfulness techniques to recognize and manage your emotions effectively. Techniques such as deep breathing, meditation, or journaling can help bring clarity to your thoughts.

  • Create a Decision-making Framework: Develop a structured approach to decision-making that incorporates both emotional and rational considerations. This might involve weighing the emotional significance of a purchase against its financial implications or setting aside a ‘cooling-off’ period before making major financial commitments.

Mastering the balance between Emotional Mind and Rational Mind is beneficial in making financial decisions you can feel good about now and in the long run. By cultivating Wise Mind, you can navigate the complexities of finances with confidence and clarity to arrive at a place that you and your loved ones want to be.

See our previous article for more about balancing rational and emotional thinking. And if you need an unbiased ear and clear-headed advice for life’s fork-in-the-road decisions, reach out to your planner. We’re here to help!

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