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Why is it significant to be rational in financial decisions?

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Money and humans both are contradictory in nature. Money is rational, and humans are emotional. The first one always demands a logical approach, while their own perceptions always drive the latter. But the fact is the humans cannot live without money, but when they both are so different, then how to create coordination between both. One solution that is quite popular is that we should keep a rational approach while making decisions. With more relatable reasons, it is possible to explain why is it better to keep a rational approach while making financial decisions.

Emotional decisions should be avoided to prevent foolish decisions

The emotional decisions are good for a few occasions if the emotions are tender, but they do not work in the case of personal or business finances. You must have heard the phrase ‘do not make any promise when you are happy and do not take any decision when you are angry. Keep this your idol in financial decisions. The better thing is to take time before taking any final step on a money matter and not let any biased thought affect the ultimate outcome.

  • Emotions can be positive, as well as negative. In both situations, we can take extreme decisions that may sound burdensome later.

Here is an example –

Financial decision at the time of extreme happiness –

Imagine you get a promotion with, of course, a salary hike. This is your ‘on top of the world’ moment. In the zeal of happiness, you tell about this new achievement to your partner, husband/wife/live-in partner. Full of energy and happiness, you both decide to buy a new car feeling that you can definitely bear the car loan with an increased salary. The car is expensive, but your zeal does not let you see the reality, and on hefty instalments, the car purchase happens. Gradually the repayments will start creating financial frustrations, and the result is stress.

Financial decision at the time extreme anger or frustration –

After a fight with your parents, you decide to move on and leave the city after selling whatever you have to start a new life with the available money. When you finally implement the decision, your finances start shaking because the new city is perhaps much more expensive than your expectations. Oops!! What to do now. But here also, there is no happy ending due to the emotional decisions.

You separate business and personal finances and avail easy business loans

Yes, it is an important reason for business owners to keep a rational approach. It is really a very common scene to see the business owners struggle with their business loan instalments. To get rid of such problems permanently, it is important to change the habits and also the behaviour. Enough of carelessness, time to be smart and pragmatic.

  • The business owners borrow in the name of commercial purposes, but then they use the money for the family and other personal purposes. As a result, the business suffocates with the financial crisis, and a loss happens, which evidently causes less income.
  • Mixing the personal and business finances make it difficult to exploit the financial services designed for business owners. For example, a lender will never consider a business loan applicant that does not separate commercial and personal user accounts.

Safety shield against credit score issues

There is no need to mention how countless people worldwide are worried due to their poor and very poor credit ratings. Such situations mostly happen due to wrong and careless financial decisions that are affected by emotions or bad financial habits.

  • The rational approach teaches you to be responsible for your financial conditions and pay the bills and debts at the right time. It helps keep a good credit score and healthy finances, which finally bring many opportunities in personal and financial life.
  • The pending credit card payments inspired by carelessness or poor money management cause poor credit score. A detailed payment history derails personal finances. As a result, peace of mind leaves, and financial frustration enter in life.
  • Those who are in a bad credit situation can get into the worst credit situation. For such people, even a small financial crisis can be a huge storm. In such conditions, help comes only through rare options like very bad credit loans with no guarantor. One may get these with no broker in the UK, thanks to the flexible FinTech market, but no one wants to reach a very poor credit situation.

There is no second thought on the fact that when it comes to financial decisions, a rational approach is the best approach. Anything was done in haste, or the effect of emotions will always bring stressful circumstances. It is better to apply logic to money and do the thing that is good for the future. Only practical decisions can be futuristic. Do you agree with this? Well, the better is to agree on it because this is how you can determine your financial happiness. 

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