Mathematical Answer Versus Emotional Answer: Which is Right?
When making a decision, do you pay more attention to how you feel about the matter, or should you follow where research and information take you? Consider how you might answer the following:
- Is the stock market a good place to invest your money?
- When’s the best age to retire?
- What type of job is right for you?
- How much money should you have in your savings account?
- Where’s the best place to vacation?
- Which car should you buy?
Did you notice if your answers tended to be more based on factual information or on personal feelings? It probably depends somewhat on how you’re wired as well as what the topic is.
How you feel is an important part of decision-making
When it comes to financial decisions, you may think that choosing a good path is more about facts than emotions, but we’ve discovered that both come into play. For most decisions in life — including financial decisions — there isn’t just one right answer; and how you feel about a choice is an important part of a plan’s success.
Balance rational and emotional thinking
One of the roles we play as financial planners is providing education about pertinent financial information. And equally essential is taking time to listen well to discover who you are and what’s important to you. It’s the combination of the two that we believe leads to the most optimal decisions. To disregard either one could result in taking a path that doesn’t get you to where you want to go.
Notice the power of your biases
If you’re someone who is most comfortable with letting data steer your path, you may experience encouragement from us to look at the bigger picture that includes desires, relationships, and an overall meaningful and satisfying life. On the other hand, if you consistently let your heart lead the way on major decisions, we’ll likely introduce you to some good solid research and data that will keep you moving toward your goals — even if it’s not exactly what feels the best to you right now.
Studies of behavioral finance reveal how influential our cognitive and emotional biases are, which can easily lead to suboptimal decisions. See our previous blog series on how biases impact investment decisions. We want to help you identify and address wherever we notice biases that could sabotage you reaching your goals.
Look to your financial planner as a partner who listens well, provides great financial information, and someone you can count on to warn you when helpful and cheer you along as you make steps toward your goals. We’re here to walk alongside you on your journey.
Written By Amanda Reynolds, CPA, CFP®