If you don’t always make the best financial decisions, you’re not alone. Most of us don’t. We get hijacked by our emotions and often end up paying dearly for the emotional decisions we make without properly weighing the options.
But how do we know when it’s right to make an emotional decision vs. an informed decision?
Emotional vs. Informed Decisions
I am often presented with the option to drive or to fly from my home in Raleigh, North Carolina to Atlanta, Georgia. The distance is 400 miles, the drive is six hours, and a flight is an hour and a half in the air. Every time I drive, I wish I’d flown. Every time I fly, I wish I’d driven. Now, most of my regret stems from the frustrations of traveling, but ultimately it boils down to cost, including and especially the value of my time.
If I’m driving, I’m imagining how much work I could be getting done on the plane, and I’m sitting in traffic, adding miles to my car, and spending money on gas. If I’m flying, I may get an hour of work done on the plane, but I also have to book the flight (and pay for it), arrange for transportation in Atlanta, carefully pack my clothes (and liquids, aerosols, gels, creams and pastes), and expect delays or cancellations.
If I decide based upon my most recent frustrations, I may choose flying if my last trip was laden with traffic jams. If I recently flew and had multiple flight delays, I may opt to drive. Either way, I’ve made an emotional decision that may prove less than advantageous to me financially, and I’m still frustrated when I arrive back home.
Fact-Based Decision Making
We do this often—us humans—we make emotional decisions based on few facts.
We shoot from the hip with only 20% of the information. But if we had a simple process that allowed us to move that 20% up to just 40%, or if we are fortunate and the process gives us a whopping 60%, we are more apt to make a fact-based, reduced-risk decision that would very likely be more financially agreeable.
So although it may cost more and take longer to fly, the hour I have on the plane to write a critical report and submit it by a certain deadline could tip the scales drastically in my favor.
Creating A Decision Matrix
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For medium-risk problems like this, we can create a simple decision matrix that weighs and rates the pros and cons of each choice. We are thus more likely to make a financially sound decision.
But often decisions are either simpler or more complex. For simpler two-option decisions that don’t carry high risk either way, we can flip a coin. If you like the result, you’ve found your answer. But if you regret the result, you should simply trust your gut and choose the other option. For low risk problems, emotional decision making is fine.
If I use my emotions to make major financial decisions, I might as well flip a coin, and I’m possibly putting myself in a dire financial position. I could still be in jeopardy by using a pros and cons matrix, or a financial adviser that makes commissions on what he sells. High stakes, complex problems require proper vetting, and a decision making process with fire power.
You can choose to hire an unbiased facilitator to walk you through the process, where you are able to concentrate on the inputs and outputs without having to understand the process, or you can choose to read up on the topic, and before you know it you will have a sound decision making process of your own, and your investments could be heading strongly in the right direction.
To learn more, click here to grab a copy of High Stakes Decision Making, 7 Steps to Making Big Decisions for Profit, Productivity and Peace of Mind.
This is a sponsored post by Michelle Doss. The views expressed in this article are their own. To learn more about Michelle, visit our Specialist Panel.
image credit: Bigstock/Mr. Alliance
Makaylah Rogers is the co-founder of MindShift.money. She is a Thought Leader for her generation, teaching people how to rewrite their “money rules.” With an extensive background in wealth building and personal development, Makaylah’s path has taken her into executive roles in various fields including launching startups, real estate sales and motivational keynote speaking.