When you make a decision, it's important to think clearly. This is especially true when it comes to making money decisions. However, there are a number of ways in which your ability to make sound decisions can be impaired. Whether you are investing, or trying to decide whether or not you want to buy something, you need to watch out: Impaired decision making can cost you thousands of dollars over your lifetime.
When your emotions are fully engaged, it's much harder to make a good decision. When you feel really good, it's easy to be careless with your money, buying things you wouldn't normally buy, and feeling as though you can handle more risk. On the flip side, fear can be just as detrimental, encouraging you to sell low after buying high when you are worried about the stock market, or missing out on an opportunity because you were to scared. Before you make a money decision, consider whether or not your emotions are impairing you.
There is a lot of pressure to be like others, and to live their lifestyles. Whether you feel like you have to buy the same expensive dinner as your friends when you go out, or whether you think that you need a bigger TV in order to fit in with the neighborhood and impress your family, caving to peer pressure can become expensive. On top of that, it can lead you to make spending decisions that are incompatible with your financial priorities. Then, you are stuck with little money — and the stuff you have might not even be what you want.
Your physical state can affect your mental state, and your ability to make decisions. Interestingly, feeling hungry can lead you to think that you want other things, too, even if you are considering non-food items. This can mean that you might think that you want to buy something, even if you don't. Also, being hungry might mean that you make decisions quickly so that you can get on to having food and sating your hunger. Impulsive and impaired: Not a recipe for good money decisions.
Other physical conditions can affect your ability to make good decisions as well. When your body is tired, you can be irritable, anxious, and your thinking processes might not be as clear as they should be. Physical pain and discomfort can also impair your decision making abilities.
It's also possible to make progressively worse decisions the more you make. It's called decision fatigue, and researchers think that it changes the way we consider different situations. As you make more decisions, your ability to make good decisions is eroded throughout the day. This means that you might be better off making money decisions earlier in the day, before the petty decisions of the day wear you down.
Before you make a money decision, stop and consider how you might be impaired. Once you recognize that you might be impaired, you can re-evaluate what you are doing, and possibly put off making the decision until you are in a better frame of mind, and better able to make good money decisions.