By Tracey Want, Head of Corporate Employee Investment and Risk-based Solutions; RMB
Many of us perceive money as a purely analytical subject, where emotions play a minor role. However, psychologists have extensively studied the impact of biases on decision-making, revealing that our choices and subsequent actions often stem from emotional responses. When emotions come into play, our responses are often guided by gut reactions rather than rational reasoning. Unfortunately, this can lead to fundamental mistakes in our judgment and actions. With the right mental models or thought patterns, these mistakes can be avoided.
FNB recently conducted a survey on retirement planning, asking some pertinent questions aimed at revealing how prepared individuals are for retirement. An interesting insight emerged from the responses, as they revealed a kaleidoscope of emotions linked to financial and retirement planning decisions and actions. This begs the question: Do our emotional connections to our retirement goals significantly impact our potential for achieving them?
In the survey, half of the respondents claim to have a plan in place, but only three-quarters of them believe they are on track with that plan. Those who are not on track report high levels of anxiety and feelings of being overwhelmed, uncertain, inadequacy and even regret.
Those without a plan describe having accepted defeat - some are in denial and others are procrastinating using the vague promise of 'one day I'll get to it' as their shield.
These types of emotions often lead to decision avoidance; but when we avoid addressing a subject, progress can become elusive.
Practical steps for better money decisions
To overcome emotional biases and make better financial choices, consider the following steps:
1. Change the status quo
Most of us humans tend to prefer a state of inertia, which is characterised by stability, routine, and familiarity. People tend to default to this status quo because it feels comfortable and requires minimal effort to maintain. Whether you've already put a plan in place or not, if you sense that you're veering off track, consider shaking things up a bit. Take time to review your affairs, revisit your plan, and be open to making necessary changes. Remember, altering the status quo can lead to positive outcomes.
2. Be accountabl
Successful individuals hold themselves accountable for their actions. Make promises to yourself and keep them. Set achievable timelines and delivery dates, so that you can assess if you are on track. Avoid making excuses or blaming others - it's up to you to get this right.
3. Avoid procrastination
Delaying important tasks is common, especially when feeling overwhelmed. Create a simple list of retirement-related steps you need to take. They don't need to be a silver-bullet solution to a problem, but they do need to define what you should do about that problem. An example could be:
The trick with a list like this is that it helps you to not feel overwhelmed or to think you need all the answers upfront. Just tick off one item at a time and when it's done, focus on the next step. Simple.
4. Your list is your action plan
Understand that no plan is fail-proof. You have the power to adapt and improve it. Make small, incremental decisions that will add up over time. Then, keep working at your action plan. Refine and adjust it as you go because winning doesn't happen overnight; it's the result of consistent effort.
5. Practice delayed gratification
Saving involves sacrificing immediate gratification for long-term benefits. Any form of saving is difficult, most of us balance a very delicate budget where daily necessities often trump our long-term goal. Just remember that any amount saved is better than none, and saving consistent amounts over a long period will allow you to benefit from compound growth.
Lastly, as you navigate your financial journey, remember this: when you find yourself in the 'zone', and you've mastered the process of taking small steps and ticking them off on your list, take a moment to celebrate your progress. Perhaps you're not winning just yet, but you're firmly on the road to a brighter financial future. Allow that sense of accomplishment to boost your confidence - knowing that you possess the strength to take control of your destiny, one step at a time.
