When it comes to money, most of us like to believe we are logical, rational decision-makers. Yet in reality, financial choices are often driven by emotions, habits, and subconscious biases rather than pure logic. This is why even smart people sometimes make poor financial decisions—whether it’s panic-selling stocks, overspending on credit cards, or delaying tax planning until the last minute.
Understanding the psychology of money can help us recognize these patterns and take smarter, more disciplined steps toward financial success.
Markets are driven by emotions. Fear of loss leads investors to sell at the wrong time, while greed often pushes them to chase quick gains. Both can destroy wealth.
Humans are social beings. If friends, family, or social media are investing in the “next big thing,” many follow without proper research—often at the cost of heavy losses.
We tend to overestimate our knowledge of money. Many believe they can outsmart the market or pick winning investments consistently—only to be proven wrong.
Studies show people fear losses twice as much as they value equivalent gains. This leads to holding on to poor investments longer than necessary, hoping they will recover.
The lure of immediate pleasure—shopping, luxury gadgets, or expensive holidays—often outweighs the discipline of long-term savings.
Divide your goals into short, medium, and long-term. This creates a clear roadmap and prevents emotional decisions.
Systematic Investment Plans (SIPs) or automatic transfers help you save before you spend, reducing impulsive behavior.
Read credible resources, attend workshops, or consult experts. Awareness reduces the chances of falling prey to myths or trends.
Follow the 24-hour rule. If you feel tempted to make a big financial move, pause, reflect, and then decide.
A trusted financial advisor brings objectivity and prevents emotional mistakes.
Money management is not just about numbers—it is deeply connected to psychology. Recognizing emotional biases such as fear, greed, and herd mentality is the first step toward financial wisdom.
By building awareness, setting goals, and seeking the right guidance, individuals and businesses can make smarter financial decisions and avoid costly mistakes.
Next time you make a financial choice, pause and ask yourself: “Am I acting on logic—or on emotion?”
Malav C. Sheth & Co. – Chartered Accountants
🌐 www.camalavsheth.com
✉️ malav@camalavsheth.com
CA Malav C. Sheth is a Fellow Member of the Institute of Chartered Accountants of India. He is also a Commerce and Law Graduate.
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