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Why we make poor financial Decisions

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Why we make poor financial Decisions

Have you ever laid awake at night wondering how it is possible that you and only you seem to always make the wrong calls financially?

You look around and see everyone else driving around in new cars, living in large houses, taking multiple holidays each year. Makes you grind your teeth doesn’t It.

What is it which they are doing right, and you always seem to be doing wrong? They went to the same sort of schools as you, had the same sort of upbringing as you but they seem to land on their feet. They are the sort of people if you were to throw them into a canal they would emerge holding a diamond.

Maybe, just maybe the issue lays with you and nothing to do with any such ethereal thing as luck on their part. Maybe you are just simply making consistently bad calls when you are presented with an opportunity if of course you can even spot an opportunity when it presents itself to you.

We all dream of being financially independent, having a big pile of cash in the bank. Never having to worry about paying another bill.

Sometimes trying to reach that goal we will be tempted to take short cuts, go for the quick win. Try and score the big one. Therefore, so many people get suckered into bogus financial schemes that promise riches over night and deliver nothing other than watching your cash disappear into the ether.

Let’s look at some of the reasoning behind poor decision making.

Deferred Gratification

Would you like a million pounds in cash right now, or would you like 2 million in cash in 2 years’ time?

That’s a tough one to answer for a lot of people. Most people would take the million pounds today.

What they do not see is the following idea. If they were asked to work for 2 more years and be paid £500k per year, would they? Of course, they would. But having a nice cool million in the bank today for many people is fulfilling their dreams today.

Many people do not want to defer gratification. This is what leads a lot of people to make financial mistakes.

Let me put another example your way. One day you are walking around the local shopping center and something catches your eye. It could be anything, a new smart phone, new pair of shoes, whatever it might be you decide that you simply must have this new thing in your life. Your life will be so much better for it if you owned it.

But only 5 minutes ago you were completely oblivious to the existence of this item, but now you have managed to convince yourself that your life would somehow be better for it if you parted with some cash to own it.

Now this is where people start to get themselves into debt. They will put it on the credit card and worry about it later. What they should do is walk away and give themselves some time to think about how they feel about this item in a day, week or month later, in most cases they will completely forget about it or feel indifferent about it.

Successful people practice deferred gratification, this is core to their success. They have sacrificed everything in the present so that in the future they will reap the rewards. Every day, evenings, weekends, family life, social life, no new clothes, or new car, no holidays for years with the aim to one day have their gratification fulfilled completely later, they will be on their yacht eating lobster while you are sat in McDonalds sharing a happy meal because you have no self-control.

If you cannot defer gratification, if you must satisfy your every urge to possess items which you can ill afford then you will continue to live a life of debt.

Sleep On It

If I had a pound for every “sure bet” that has been presented to me over the years I reckon I could have retired by now.

“Invest £100 today and get £1,000 at the end of the month”

“buy now to avoid disappointment”

“only a few remaining”

my favourite

“hurry, everyone else has got one, get yours too”

First, once the hard sell comes on, I switch off and walk away. Whatever is being sold ought to be able to sell itself. If it needs to be pushed hard then its not worth my time. Does a Ferrari need the hard sell? Does a holiday to Fiji need the hard sell? Exactly!

If there was a scheme where I could put in £100 and get £1,000 out at the end of the month I am sure as hell would not tell anyone.

The “buy now to avoid disappointment”, makes me laugh, why should I not avoid disappointment, what’s going to happen if I am disappointed? Will my arms fall off?

only a few remaining”, your inability to stock up correctly is of no concern of mine.

“hurry, everyone else has got one, get yours too”, most people have poor hygiene and terrible body odour does mean I should too. I will look at what ever it is in my own time. Your urgency is not mine.

Never feel pressured into buying something. Don’t buy something because you feel bad walking out of the shop feeling that you have wasted the salespersons time. What!!!

That’s what they are paid for. In 30 mins they’ll have forgotten you. But they won’t forget you “the mug” that ended up buying more than they could or should afford because of guilt!!

Seriously, I have heard people tell me that they felt bad for the salesperson and they seemed like such a nice person, so they bought whatever bondoogle was being sold and put it on the credit card, great! Even more debt to now worry about.

Do not feel pressured into making a decision that you are not in control of.

Herd Mentality

A few years ago, back in 2017 crypto currencies started to go up in price to the point that people were becoming millionaires within months.

People who had never heard of crypto currencies were suddenly swept away by the mounting hysteria to get a slice of the action.

What is crypto, where do I buy it, where do I sell it, which one shall I buy? I’ll admit I was one of them, I was aware of crypto for years and dabbled a little here and there but nothing serious, but come 2017 everyone wanted in.

People were taking out personal loans, I even heard someone take out a payday loan to buy some crypto think that they would quadruple their investment in a matter of day.

Look, some people did well out of it, but a lot of people got into the game at the end of 2017 when the market was right at the top than then went over a cliff edge.

I managed to sell all my crypto just before the top. How did I know to sell, easy, my wife told me that her hairdresser had bought some crypto currencies and was telling my wife to buy some. As soon as my wife told me that I quickly logged into my account and sold everything I had. 2 weeks later the whole market went down.

When the hairdresser starts to give financial advice, I knew that the bottom of the market had been reached or at least we were close to it.

Don’t get greedy and don’t get involved in something you do not understand or at least don’t get involved in something you can’t explain to your mother without having to draw diagrams.

Anyone who has trading stocks, shares, forex will know that “The trend is your friend”, if the market is going up, follow the market, if it is going down, again follow the market.

But I ain’t a trader so don’t take my word for it.

Timing is everything.

If only I had held on for a little bit longer! How many times must you have said that to yourself? I have said it many a time. But I also know that if I come out with a £20 profit rather than £20 loss then I am happy. Don’t get greedy, take your profits when they are there.

If you have stocks and shares you will no doubt study the market. You will listen to the advice of people who have experience in these matters.

When the property market started to heat up in the late 1990’s we saw property prices climb each year, people kept saying that the market could not sustain these prices and they will wait to buy when the prices calmed down. The prices did not calm down, they just kept on going up and up

In 2008 during the financial crisis, we saw property prices begin to fall, and the same people said “we will buy when the prices are a little bit lower, they have to come down another £10k then that’s the right time to buy”

The prices dropped then they resumed their climb, and those prices simply kept on climbing and those people who were trying to second guess the market never bought anything.

Never second guess the market, once again the “trend is your friend”.

Property is generally one of the best investments you will ever make, why do you think all the Russian Bizz-nizz Men and Chinese Millionaires are buying property here in the UK. As I once heard someone say. “They are not making any more land”

Don’t get your knickers in a twist that you overpaid for a £250k house by £5k, in 10 years’ time you won’t remember

Managing Money

If you find yourself using credit card, payday loans and overdrafts to make ends meet i would strongly suggest that you put the brakes on everything.

Look at all your expenses and cut everything but the essentials out, things like, food, council tax, utilities etc.

Do away with nights out, takeaways, expensive memberships to the gym, that sort of thing. For one year tighten your belts and start respecting money and use it to better your life rather than using it to better someone else’s life.

You need to plan. How will you support yourself in your old age? What sort of pension plan do you have? Do you have assets you could sell? Do you have property to rent?

If you have not started yet, you’ll want to start asap, how to make money.


Instant money

This is not what I would call financial planning, for example, if you win a large sum of cash, or inherit the money and lost it is all the next day could you recreate the wealth?

If you could not then you do not deserve that money and you will soon be parted with it in any event.

Every financially successful person knows the name of every pound which they have earned. Whereas lottery winners and those who inherit it the money is just visiting, and that money will soon be going to its rightful owner. Always remember that money attracts money.

If you do come into a large sum of cash, first, well done, second of all why are you reading this? ?

Seriously, before you go down to the lambo showroom or buy a palace in the country you will need not want but NEED to get sound financial advice.

Remember up until now you have not had to deal with large sums of the money and when we are dealing with hundreds of thousands or millions of pounds the rules are different and new doors and opportunities will present themselves. Money is the key and so is professional advice.

Some rules to keeping a cool head when making decisions involving money

Don’t rush, take your time: Don’t let anyone push you into deciding. What I do is to picture an arrow that points in the direct of the person who will benefit the most from the deal. If the arrow is pointing away from me then I have control, don’t let anyone take that control from you.

Ask Questions: This is something that people just won’t do for fear of looking stupid. Fine, let me look stupid, I’d rather look stupid and have the money in my pocket. A little caution is better than a great regret. Do your research. If you want to know then ask the question. If the point is not clear, again ask the question again until you understand what is happening, once the money has exchanged hands then you have lost control.

Ask the Pros: Ask people who have been there before you, don’t be afraid to ask for advice. Speak to the professionals and get that advice.

Park Your Emotions: When making a deal, when negotiating for anything you must take the emotion out the deal, once the deal is done then you put your emotion back in.

Remember your lessons: Remember your mistakes of the past, put them to good use. Those were not mistakes; those were learning experiences.

Debt management agencies are regulated by The Financial Conduct Authority

Many people in the U.K struggle with debts and many do not know how to start to repay them speaking to a debt advisor is one of the best things you will do along with taking action yourself by speaking directly with your creditors.

https://www.nationaldebtline.org/ and https://www.moneyadviceservice.org.uk

You should always seek professional advice when handling debt problems. Cashute are not licensed debt advisers and any information contained in this article should not be taken as legal advice. It is your Responsibility to seek out correct legal advice

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk