It’s always fun to use “reverse” psychology on your kids: “Don’t you dare clean your room!” Sure enough, they run up the stairs, laughing hysterically, to make their beds and shove half of their toys in the closet.
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If only it was that easy with money: “Don’t you dare spend too little this month!”
The psychology of financial planning has become a new topic for the Certified Financial Planner Board of Standards. The CFP Board added the category to its eight principal knowledge topics for 2021 and it will even crop up in the certification exam starting next year.
Psychology in financial planning involves combining traditional advice with elements of behavioral finance to strengthen client relationships.
The experts know what you might do before you do it, so what if you could predict your own financial behavior ahead of time? That way, you can intervene on your behalf before you go into debt or veer off toward another ill-advised direction with your money.
How You Can Use Psychology to Predict Your Own Behavior
You can use psychology to predict your own behavior ahead of time. Seems weird, right? Well not really, because understanding the types of psychological behaviors common among investors can help you make better investing decisions.
Let’s take a look at how you might attempt to predict your own behavior with three main tips.
Tip 1: Know psychological principles related to investing.
The more you research various psychological principles related to investing, you may find yourself more aware of your own behavior.
In general, humans are a confident bunch. Confidence can lead to biased investing decisions. For example, you may believe that you understand financial markets or specific investments really well and don’t take care to analyze data and expert advice. Overconfident investors also believe they have more control over their investments than they actually do. (Experts also overestimate their own abilities to pick stocks.)
We like things with which we’re familiar. It’s why we choose McDonald’s over a wonderful local restaurant when we find ourselves in a new town. The …….