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3 Science-backed Tips to Making Better Financial Decisions

Just about everything in our lives requires us to make a decision, big or small. From what to wear in the morning, to which Netflix series to watch at night, all the way to where we want to buy our first home. Our lives require us to make a multitude of decisions.

If only there were a way to make the right decision a hundred percent of the time. Moreover, the many factors and constraints that go into making a decision are hardly the same. That’s why we often only recognise a bad decision after the fact.

But don’t worry, there is a better way.

Proactive decision-making

Neuroscientist Dr Caroline Leaf defines this as someone who is deliberately and intentionally analysing their thoughts and feelings objectively before making a decision.

When we practice this on a regular basis, we start to become wiser in our decision-making. This practice involves disassociating yourself from the situation you’re in, almost as though you are helping someone else evaluate their thinking and helping them to plan out the next steps.

In order to make better decisions, we need to understand why we make bad decisions. Dr Leaf lays out 3 key factors in her book “Think, Learn, Succeed”.

1. Making decisions when you’re tired

While our thoughts are infinite, our brains are not — and they get tired. When our brains are tired, the chemicals don’t flow as they should. This can cause us to make bad decisions. What we need to do is allow our brains to rest before making decisions.

This means avoiding making purchases when you’re feeling exhausted because you’ll probably regret it. Avoid that bedtime shopping habit on Instagram, or meeting with a financial advisor to make big decisions during a busy and exhausting time at work.

“Sleep on it”

This is where the phrase “sleep on it” applies. We don’t need to rush into decisions.

If you ever feel forced into buying something you’re unsure of, chances are you should let it go. There will be another sale again or a better opportunity that will come your way.

In fact, if it’s a major financial decision, be sure to have a plan in place first and never just wing it on the spot. Read more about setting financial goals here.

2. Making decisions while you’re distracted

When we try to multi-task and are distracted by many things, we can make bad decisions. Your brain’s processing capacity at any one time is limited, so processing multiple information at a go can be exhausting.

For example, if you’re listening to a podcast, texting a colleague to settle a work issue while navigating through the crowd to shop for an item, you’re probably not doing any of them best.

Dr Leaf recommends organising your thoughts and tackling each thing you need to do so that it can have your full attention.

To apply this solution to the scenario above, you should pause the podcast, find a seat and take 10 minutes to settle the work issue, or inform your colleague that you will get back to them later. Write out which stores you want to go to and give your attention to the items you want to get.

This way, you won’t end up buying something that you’ll regret. (While you’re shopping, here are some tips to help make sure that you don’t overspend.)

3. Making decisions when you’re emotional

Your emotions are chemicals in your brain that are attached to information. As we think, we create emotions — if our thinking becomes messy, then our emotions get messy and it’s hard to make good decisions.

This is why when you’re emotional, you need to prevent your emotions from leading you or make any decisions for you. You could defer to make the decision the next day when you’re feeling better, or even speak to a rational friend about how you’re feeling and have them help guide you through your decisions. Who says decision-making has to be a one man job?

Who says decision-making has to be a one man job?

So the next time you’re tired, distracted or feeling emotional, hit pause.

Don’t make decisions on a whim when you know you’re not thinking clearly. Instead, use these tips and start becoming a proactive decision maker. A life of great decisions is a life well-lived.

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