Based on our not so scientific observations, we all have two brains — our logical brain, and our emotional brain.
Each and every day we have choices to make and decisions to take. On our best days, we’d like to believe that our logical brain is leading the charge, making the most rational decisions based on the facts we have. But guess what? Our emotional brain is always in the driver’s seat, guiding and driving our decision making process, with our logical brain buckled safely into the passenger’s seat, along for the metaphorical ride.
Simply put, our emotional brain is actually in charge while our logical brain provides support. With our emotional brain calling all the shots however, our logical brains therefore get saddled with the responsibility of justifying the emotionally-driven decisions we make… and let’s just say our logical brain has to get pretty creative with its rationale to support our, at times, brash emotional choices. Better yet though, our rational brain takes its support role very seriously, using justification to do an incredibly convincing job at making our emotional decisions make “sense”.
So, what are some tell-tale, warning signs to be aware of that would indicate that our rational brain is using bad logic or has scrambled into high-drive justification mode to what is naturally an emotionally-driven financial decision?
- We move into justification mode — you find yourself uttering the words “it’s an investment” when it comes to acquiring a depreciating asset — like a vehicle — or spending money on home “improvement” like a pricey kitchen renovation years before you’re ready to move.
- The primary feeling you’re experiencing is excitement — while excitement is a good thing and a healthy emotion, generally, when it comes to outfitting your home with a new roof or your car with new tires, the emotion you feel generally is not excitement but anxiety of not wanting to wait too long to replace either versus purchasing the latest iPhone because your battery health has decreased from 98% to 97% and has therefore become less reliable in your mind.
- You make no decision — whether you realize it or not, no decision is in fact a decision. By choosing to not make a decision you may think you are not letting your emotional brain drive the car, but in fact, you are, it’s just fear that you’re feeling this time.
- The sacrifice is not obvious — when we make a decision to take our young family on yearly international vacations rather then on local camping trips because we’re convinced that one experience is superior over the other and we’re doing it “for the kids”, our emotional brain might be focused on enriching the lives of our children but what about the potential opportunity cost of putting off financial independence in the process?
- Your decision reduces the control in your life — we decide that welcoming more debt into our life is justified if it means reliability in the form of a brand new, top end of the line vehicle — however with this decision comes expensive vehicle payments which potentially ties us to a particular salary figure and a particular job with little or no option to transition onto a lesser paying employment opportunity.
As humans, every decision will automatically be one made and led by emotions — it’s simply just a matter of understanding that this is in fact the case. Your rational brain will do all it can to defend and support your emotional brain’s decisions, so simply be vigilant, aware and prepared for an upcoming blog post on our five strategies for managing our emotional brain for personal finances.