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A recipe for bad financial decisions

Posted September 03, 2014 in Adel, Advice Column

Life transitions, even planned ones, are stressful. The most level-headed people aren’t immune from bouts of irrational thinking when life throws us a curve ball. Fear, worry and stress are the key ingredients of bad financial decisions, and they are abundantly present in the midst of major life transitions, especially those we are unprepared for.

Fear is an embedded human trait that must be constantly managed if rational financial behavior is to prevail. Life transitions may activate our fears to elevated levels and cause us to see a half-empty glass versus a half-full one. Even generally optimistic folks can fall victim to this kind of thinking when facing difficult circumstances.

Worry is a by-product of fear and is perhaps the most disruptive element to making sound decisions, financial and otherwise. Unlike fear, which is instinctive, worry is a choice. Worry doesn’t solve problems, but it can make them worse by paralyzing us into inaction. We don’t worry about the problems themselves — it’s the consequences that cause us to worry. Often, the outcomes we imagine are far worse than the reality of the situation.

Stress is neither a trait nor a behavior, but a state of being that greatly impacts our physical, emotional and mental processes. We’re fooling ourselves if we believe that high stress levels don’t impair our ability to think straight. Worry and fear elevate stress levels, and must be dealt with if we are to avoid a vicious cycle that leads to poor choices, including inaction.

The best thing we can do at times of maximum stress is to seek help from qualified professionals, and support from our families and friends. Decisions made under stress may turn out to be bad decisions. Speaking strictly about financial matters, getting professional help can remove the unknowns and allow us to stop worrying. As worry and fear subside, stress should follow. Ultimately, the wisest choice when we’re under severe stress is to lean on others rather than ourselves.

Steve Conard is a CERTIFIED FINANCIAL PLANNER™ professional with Compass Financial Services, a registered investment advisor with offices in West Des Moines and Adel. Securities offered through LPL Financial, member FINRA/SIPC. Compass Financial Services is not an affiliate of LPL Financial.

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