Behavioural finance, or behaviour-oriented financial market theory, is a rapidly growing field in finance that examines the effects of human emotions and behaviour on financial decisions.
In other words, this is how experiences or emotions influence the way you invest your money. It combines elements of psychology, economics and finance, examining statistics that show how people behave on the financial market.
Other behavioral draw backs are the differences between right brain and left brain oriented personalities. The theory suggests that one side of your brain is more dominant and affects how we tackle challenges.
Left brain is considered for logic, sequencing, mathematics and facts. Everything required for financial management decisions. The right brain is for imagination, creativity, feelings and daydreaming; perfect for artists and social skills but with tendencies to avoid process-driven tasks.
Sound familiar? If this is you, build a professional relationship with an adviser and get their help to navigate you through the boring tasks of building a plan.
Another behavioural challenge for many younger expats or foreign professionals is the “fresh man (person) trap”. Suddenly having a fair amount of excess money can make you fall into an “Instagram life trap” where you become too busy spending and enjoying and partying like never before.
With whatever money is left over in a bank account you feel too tired to make any formal plans!
The final behavioral trap is procrastination. Why do we procrastinate? The primary function of the human mind is to survive before it’s prepared for new successful decisions.
When looking to future tasks, many brain sets may be “auto tuned” to look to past experiences that we can easily recall, rather than the future unknown and the skills or new knowledge required.
To determine what to do and what it believes is capable of is based on those past experiences which may be littered with set backs and failures of different examples.
Procrastination is therefore a coping mechanism for dealing with what’s happened before, not what can happen differently for gain.
Too often this creates an identity behaviour or a habitual behaviour. Rather than a past/present decision reality, we need to reshape to a future/present decision reality and make a change.
Remember, if you do what you’ve always done, you’ll get what you’ve always got! If you want to change your world, change yourself. Time is ticking, so if any of this sounds familiar, do something about that right now.
