The Psychology of Money: Eight Ways to Change Your Attitude Toward Money

As the old saying goes, personal finance is ‘mostly personal and a little bit financial.’ Long-term growth and success rely more on our habits and behaviors than complex knowledge and advanced strategies. Learning a few key points on the psychology of money can go a long way to building the right mindset for prosperity.

Let’s look at a few far-reaching psychological concepts that play an outsized role in our financial lives, including some of the biases and fallacies that can point us in the wrong direction.

8 Crucial Money Psychology Concepts

Human cognition can be messy. Each of us carries a collection of cognitive biases, irrational beliefs, and behavioral quirks. When we make decisions about our money, this can, unfortunately, lead us down the wrong path.

Optimism bias is the natural tendency to overestimate the likeliness of positive outcomes and underestimate negative ones.

Optimism Bias

Pessimism bias, (also known as negativity bias), draws our attention away from favorable circumstances and causes us to weigh negative stimuli more heavily.

Pessimism Bias

Due to hedonic adaptation, many spend most of their adult lives buying bigger, fancier, and nicer things.

Hedonic  Adaptation

The sunk cost fallacy describes the human tendency to keep doing something we have started, even if it isn’t working out.

Sunk Cost  Fallacy

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