Four Red Flags that Lead to Bad Financial Decisions


red flagsDeciding on different money issues is challenging because one mistake can cause drastic effects today and in the future. If you’re about to make a major move that involves your finances, here are four warning signs that you should watch out for.

1. Deciding based on emotions

Emotions have the tendency to cloud our judgment. When you let them be the main driving force for a financial decision, you putting yourself at higher risk of making a mistake. Here are some emotions that you should block especially when it comes to money management.

  • Anxiety – It causes you to be more conservative and prevents you from taking steps that can boost your savings.
  • Jealousy and Embarrassment – These emotions cause the fear of missing out and make you want to keep up with your neighbors. So everyone’s toting around with the latest designer bag, and you feel pressured to fit in so you want to the nearest outlet, blew your paycheck on a purse. Because you blew all that money in a purse, how would you cover your expenses until the next payday?
  • Regret – Ten percent of Americans admit that their biggest mistake is something about money, research shows. When you regret and feel wistful about not saving enough or not starting early, you may feel so defeated and end up putting off saving and financial planning altogether.
  • Feeling overwhelmed – Whether you’re just starting out in life and don’t know where to start or someone who’s deep in debt and need some catching up to do in sorting out their finances—it can leave you paralyzed and prevent you from doing the right thing.

When you let these emotions influence how you decide, you are about to make a misstep. Don’t add up to your agony further and set these aside and be objective as you plan to make a purchase or take out a loan.

2. Being influenced by a non-professional

Don’t get us wrong. This doesn’t mean that you shouldn’t consider financial advice that comes from family members and loved ones. However, you shouldn’t base your decision on their insight alone.

For instance, a friend told you about a an investment he went into and persuaded you to get on board. Because you trust him, you did. However, you eventually lose more than you gained and realized that it’s a too-good-to-be-true deal.

3. Failing to do your research

When making decisions that involve your finances, you need to carefully weigh the pros and cons of making that move. For instance, if you want to purchase long-term care insurance, you need to understand how it works, what influences its cost, and if it’s suitable for your needs. Take time in doing your homework. Remember that the effects of one financial mistake can ripple through the rest of your life.

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4. Not trusting your instincts

When you’re instincts tells you to go the other way, step back and reconsider your decision. If something in your gut doesn’t seem right, don’t ignore it. You’d rather spend more time recalculating your move, than spend time trying to recuperate from a major loss in the future.

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