I’m sure that all of the hockey fans out there are super pumped for the upcoming NHL playoffs. I haven’t been able to follow hockey this year as much as I usually do due to my busy schedule and partially because of losing a bit of interest. Before this turns into an article on the NHL allow me to tell you guys a story about how your emotions could cost you money.
I have a friend that is a huge Toronto Maple Leaf’s fan (yes they do exist) and he always supports them no matter what happens. In fact he even attends some of the team’s over priced games which he pays over $150 for seats that require binoculars. Long story short his love for the Toronto Maple Leafs leads to him making irrational decisions fueled by pure emotion. At the beginning of the season he was talking everyone’s ears off about how the team will make the playoffs this year and have a comeback season. I told him to put his money where his mouth his and make a bet with me for $100 that they would make the playoffs. Not only did he accept but he went on to offer the same challenge to a few other people. What happened? I got a nice $100 the other day and so did a few other people, putting this guy a couple of hundred dollars in the hole.
A few points to remember from this story to ensure you don’t allow your emotions to make financial decisions for you:
- Look at the track record. Whether you’re investing in a company or making a bet with your friends you must consider the track record of the item you are investing your hard earned money into. Just because you work for a specific company or enjoy the products of the company it doesn’t mean that you have to purchase shares from the company.
- Consider the other options. Before you make any purchase or investment (real estate, shares, retirement plan) look into all possible alternatives and not just the option that you feel an emotional attachment towards.
- Be realistic. Come on if companies you’ve invested in have underperformed for many years or if the market value of homes in a certain community has been decreasing for the past two decades then why spend your money?
- Ask yourself if the decision you’re making is based on emotions or fact. This is may be the toughest lesson learned. Before making any financial decisions try to figure out in your own mind if the criteria you use is fact based or simply all emotions? By facts I mean concrete evidence, proven track record, ability, and so on. By emotions I’m referring to any bias or attachment you may have to any given product.
Have you ever let your emotions get in the way of making a rational financial decision?
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Good recommendation is not to go shopping when you are emotional, both happy or sad. Either way could lead to spending more, although sometimes hard to avoid.
Well he can keep being a fan of the Leafs but as long as he can manage it well, in terms of finances.
Its like a hobby, theres a difference between say buying rims or whatever for your car when you have money saved up opposed to like spending too much or over your budget and then feeling like shit about it.
I’m a Leafs fan too and thought they had no chance of making the playoffs. Maybe the lesson should be not to be blind to the flaws in your company/product.
No major, ‘I desperately wish I could redo that choice’ decisions, but I have done plenty of the little things, like spending too much when I go shopping to cheer myself up or celebrate. I could probably do with a bit more calm, cool logic, as always.
A fantastic read….very literate and informative. Many thanks….where is your RSS button ?