Successful management of Nidhi’s finances requires more than just adding money and subtracting expenses. In fact, her financial situation is more of an emotional situation. For example, if she spends her bonus money on pleasurable trips or purchases rather than saving, then she spends emotionally. Procrastination is not her biggest virtue. She would rather spend the bonus now, than enjoy the fruits of wealth creation later. She could also be spending more than what was expected or budgeted for, just because she is finding it difficult to get rid of some item due to emotional attachment and fear of loss, such as paying large sums to maintain a favourite old car.
For starters, Nidhi must look for ways to set up automated savings into deposits or systematic investments into mutual funds. By setting up automated bank transfers, she’ll be reducing the emotional tug-of-war that typically makes her change her mind. This will make it easier for her to stick to a budget. Besides, she must try reaching out to people who have knowledge, experience and objectivity to help her weed out the bad financial choices. There are enough DIY online resources, personal finance advisers, robo-advisory platforms for her to seek help from. There is no shame in asking for help or delegating some of her responsibilities, as one cannot be expected to be good at everything.
The best way to avoid making poor emotional money decisions for Nidhi would be to sleep over it—wait a day. When she finds herself considering a significant purchase, investment, or other financial expenditures, she should first list out the pros and cons – including emotional comments. A review of the list will help her gain insight into what her motivation is. This will also ensure that she is better equipped to determine whether or not she is making the financial choice from an emotional place.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
