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When it comes to making financial decisions, there's a whole lot more going on under the hood than many people realize. We're diving into some sneaky psychological stuff that can muddy your financial decision-making. 

Anchoring Bias: This happens when we make decisions based too heavily on the information we receive first (aka the anchor). Like ignoring cues in the current market and judging a stock's future solely on its past performance.  

Confirmation Bias: Confirmation bias is when we interpret and look for info that supports what we already think. Take someone who's all about saving money – they may see every penny they saved as proof they're doing things right yet justify splurging on unnecessary expenses. 

Instant gratification: Why wait for tomorrow when you can have it all today? This is a psychological phenomenon called present bias. Basically, our brains are set up to prioritize immediate rewards over long-term gains. So, when we’re faced with the choice between splurging on a night out or saving for retirement, guess which one our we’re tempted to go for? Spoiler – its not retirement! 

Loss aversion: Loss aversion is when real or potential loss is viewed as being worse than an equal gain. We’re hardwired to hate losing stuff so much that we’ll make choices like sticking with a sinking ship instead of cutting our losses. For example, a homeowner who bought their house at a high price may refuse to sell for a price below what they paid for it, even if the market has declined. 

Herd mentality: From buying the newest gadgets to crypto currency, we often feel more inclined to jump on board with what “everyone else is doing.” But sometimes, that means our money moves aren't based on data or what works best for us. 

Our emotions can also come into play when making financial decisions. 

Stress: Ever have a rough day and turn to shopping or a fancy dinner out to feel better? This is totally fine once in awhile, but can become problematic if its a regular response to stress. 

Fear: When the market takes a nosedive, fear can lead some people to sell their investments in a panic to avoid further losses. But selling during a downturn can make it harder to bounce back when the market recovers. 

Overconfidence: Being overly confident can drive us to take bigger risks than we should or think we’ve got the market all figured out. 

Now, you might be wondering “how am I supposed to make smart financial decisions with all these things in the mix?” Fortunately, awareness is key and can help you keep your brain in check when emotional and psychological factors sneak into your financial decision-making process.