Why your emotions can cost you a fortune
As financial planner Carl Richards rightly points out, people are pretty incapable of removing emotions from their financial decisions.
However, he illustrates in his sketch below, those pesky emotions can get expensive when you're investing. The more emotionally attached you are to an investment, the more likely you are to make a mistake with it.
Richards, author of "The One-Page Financial Plan," explains that emotion can make us hold onto an investment longer than we should, just because we can't bear to let it go. Keeping investments, unlike, for example, keeping our old college sweater, can actively cost us money.
We need to be aware that liking an investment a lot may not be enough to justify owning it. On top of that awareness, we need to remember how our strong emotions may lead us to make a mistake.
Pause for a minute and think through a big financial decision you made based mostly on emotion. Maybe it turned out great, but I'm betting that you made more mistakes than you expected. Even if things turned out O.K., I'm also betting that afterwards, you wish you'd done a few things differently.
If so, you're not alone. I've done it. Your friends have done it. But our goal is to avoid repeating it.
To keep from getting carried away by sentimentality, Richards suggests noting your own preferred course of action, then asking a friend with no stake in the matter what they suggest doing. If the friend suggests the opposite of your choice, take some time to figure out why. Even if you end up doing what you planned originally, at least you know the unemotional reasons behind your decision.
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