The petrol crisis and emotion v logic....

Let's be clear...the recent petrol crisis wasn't a crisis at all.  It was an emotional response to a couple of news articles for events which might potentially happen. People rushed to the petrol pumps in droves sometimes waiting hours to top up their vehicles, based on a potential strike which never happened and fuelled (excuse the  pun - couldn't resist!) by some frankly shocking advice from certain government ministers.  The press who promoted the story didn't help much either and made the it worse.

So, a crisis which was never a crisis made worse by bad advice and certain members of the press, but ultimately guided by one thing - consumer emotion.  Don't get me wrong, I think queuing up for hours for petrol was an understandable action to take, but one solely guided by emotion (the 'fear factor' of not having enough fuel in the car) as opposed to looking at the  facts and making a decision accordingly.  I'm also not suggesting you shouldn't be emotional....sometimes it can be a fantastic motivator, however if you act on emotion alone it's unlikely you'll make the right decisions in the long term.

As an individual, emotion is a great motivator.  In my personal life, I love spending time with my family, get excited when Charlotte comes home and tells me something new she's learned and at the moment when Sophie smiles, laughs and gargles!  In my business, I get excited about new ideas, concepts I want to try and the passion I have to push my business forward. However I've made mistakes, thankfully ones I've learnt a lot from, and when I look back at these errors in judgement I think at least part of the issue is not tempering the drive and passion (emotion) with a more methodical approach (logic).  It's something I try to apply more rigorously now when running my business.

Interestingly, I've spent some time today reading about how behaviour impacts peoples spending habits and attitude to investment.  Whilst I don't profess to be an expert (yet!), the interesting point raised is that how people should invest isn't always how people choose to invest.  Whilst I've learned within my business that the emotional aspect should always be tempered with a more methodical approach, it's something I've advocated with my clients in relation to investing for their financial futures for years.

For our clients it's about listening to what their plans are in the future and why they feel passionate about these future goals, understanding their previous experience and why they feel certain ways about risk (both gain and loss).  Once we've got a understand how they are feeling (and the reasons behind these feelings), it's time to temper this emotion with logic and build a longer term financial plan based on a logical and methodical approach.  This doesn't mean we ignore our client emotions, it just means making sure emotions don't cloud our judgement when we provide advice.

So, next time you are making an decision about your financial future, make sure you're aware of your emotions, but don't let you're heart rule your head.  Instead of chasing the "next big thing" or looking to invest in "exciting new investment opportunities", take a more methodical and scientific approach to your investment choices, and the odds are you'll "feel" better about it in the long run.


Thanks to www.behaviorgap.com for use of the really interesting resource,  and thanks to @Theparaplanner for pointing me in the right direction.