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5 Ways Psychology Affects Your Money

financial planning money management 101 retirement planning Nov 09, 2023

Retirement is a time of life many people eagerly anticipate and is often characterized by a host of financial decisions that can significantly impact one's quality of life. However, these decisions are not purely rational. They are often profoundly influenced by psychological factors. Understanding how these factors come into play during retirement is crucial for making sound financial choices, preventing missed investment opportunities, alleviating anxiety, and avoiding poor decisions.


1. Emotional Decision Making

Emotional decision making involves making decisions based on your feelings and not on facts. You don't want to make big financial choices because of your personal fears, anxiety or even over-confidence


2. Risk Aversion

As we age and get older we avoid risk more and more, often because we feel we have less time to recover from any failures. Depending on how well you have saved for retirement, this can cause you to spend less and enjoy your retirement less than what you can actually afford.  


3. Confirmation Bias

Often associated with a 'closed mind', someone with confirmation bias only looks for information that supports what they already believe. This can affect how you make financial decisions by creating missed opportunities, making riskier investments and following a herd mentality.


4. Loss Aversion

Many people are more concerned with the possibility of losing money than the potential of earning it. In the end loss aversion can cost you a lot of money.


5. Anchoring

Anchoring is making financial decisions based on past decisions and not what makes sense for the here and now. This can and often negatively affects spending, budgeting and investing decisions.    


The video below has some really great points and tips to overcome these psychological factors so that you can make the best decisions and reach your financial goals.

Parallel Wealth Financial Group Inc. is based in Langley, British Columbia with offices in Calgary, Alberta and the Niagara region in Ontario. We are here to serve Canadians with their financial planning needs. 


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