How does the brain influence financial decisions?

How does your mind influence financial decisions?

Have you ever stopped to think about what is behind your financial decisions?

In fact, many of our purchasing decisions happen unconsciously.

Every day, you are bombarded with advertisements about promotions and product launches that seem essential.

However, after the euphoria passes, you realize that the purchase was not actually that necessary.

If you think that many of your financial decisions are wrong, know that it is possible to change the situation.

To understand more about the subject, continue reading!

What is behavioral finance?

The area of behavioral finance seeks to understand the relationship between reason, emotion and decisions related to money.

This topic is becoming increasingly important – both for businesses and consumers.

This is because many of the decisions that human beings make when it comes to finances are directly linked to psychology and the analysis of human behavior.

Financial experts always talk about the importance of spending less than you earn and building an emergency fund. behavioral finance, seek to understand why many people do not do this.

In fact, it is common for people to spend more than they can afford and, in some situations, fail to meet certain deadlines, such as paying monthly bills, for example.

And this is precisely where behavioral finance comes in, which analyzes the balance between reason and emotion when dealing with money.

The Brain Traps That Are Hindering Your Personal Finances

The brain has three regions that control our consumption decisions:

• Reptilian brain: part responsible for reflexes related to primitive emotions. It controls everything that is responsible for survival.

• Limbic brain: also known as the emotional brain, it is responsible for controlling more complex emotions and sensations related to the 5 senses.

• Neocortex: It is related to important functions such as sensory perception, motor commands, consciousness and neurolanguage. It is the part that we believe we use to make decisions and control the reasoning side.

Knowing and exercising each of these regions of the brain is important for controlling your finances.

The area responsible for impulse is the reptilian one. But when a person makes a purchase to deal with frustration, the area that becomes active is the limbic system.

The third region is the most used by consumers who already have a greater financial balance. When this area is in action, the individual is able to think more before making decisions.

By understanding and controlling primitive impulses, it becomes possible to balance desires and better analyze our actions and consequences.

What is the relationship between emotions and money?

There are many relationships between emotions and money.

In fact, depending on the moment you are in, money can have different representations.

This means that the emotional relationship with money is different for each person.

For this reason, in order for you to truly understand how you relate to money, you need to pay attention to your financial emotions and identify some reasons why you are unable to save.

According to psychologist Bradley Klontz, there are some scripts that are followed when it comes to personal finances. Find out what they are and understand your relationship with money.

1. Withdrawal from money

This is a relatively common belief. Many people believe that money is a bad thing and that striving for a more prosperous life is not a good thing.

In fact, in this case, there is also the belief that money is the cause of various evils.

2. Worship of money

People who worship money actually believe they will never have enough.

These individuals believe that only money can bring satisfaction and happiness and, therefore, they leave aside other important things in life.

3. Money-related status

This factor refers to people who think that self-esteem is totally related to financial issues.

They think that their value depends solely on money and seek to focus their purchases on products and services that favor their self-image.

4. Money surveillance

This thinking is very characteristic in the lives of people who have a more stable financial situation.

Furthermore, they are very careful with money.

This, of course, has a positive side. After all, these individuals have a financial reserve to deal with unforeseen events. The problem is that they believe they never have enough. 

This thought is related to the guilt of spending money.

Source: Andre Bona

How to be intelligent in your emotional relationship with money?

Through emotional intelligence, it is possible to rationalize feelings and emotions, so that it is possible to control impulsive financial decisions.

The truth is that with the right strategies, you can develop a good relationship with finances.

Here are some simple tips that can be put into practice:

Make decisions based on your financial planning

Financial planning is very important to control your expenses.

However, if it is not followed, you may continue to make impulsive decisions.

Keep in mind the need to purchase a particular product or service.

Before making a purchase, ask yourself the following question: “Do I really need this?”

Don't buy goods just for the status they bring

The habit of buying goods just to have status can actually lead to a lot of debt and financial worries.

Make emotionally intelligent choices and spend your money wisely. In the medium and long term, this change in habit will bring you more peace of mind and satisfaction.

Understand money in a different way

Through money, you can achieve goals, even if they are not immediate.

But to do this, you need to respect your financial planning and create the habit of saving!

Think about your real needs

It seems obvious, but many times, we buy things we don't need.

As we said, it’s always important to ask if you really need something.

By truly understanding your needs, it becomes easier to avoid the compulsive shopping and make smarter financial decisions.

Conclusion

The brain influences financial decisions and many brands know this.

But to improve your relationship with money, it is important to develop greater financial and emotional intelligence.

With simple steps, you can improve control over your emotions and your finances!