Benjamin Graham, an American investor and economist, was onto something when he once said that “the investor’s chief problem — and even his worst enemy — is likely to be himself.” That’s because when it comes to money, sometimes our minds can get in the way of our success. Who to we have to thank for this self-sabotage? Cognitive biases, or errors in reasoning that affect judgement and decision-making.
Cognitive biases can wreak havoc on our finances, keeping us from spending wisely and saving diligently. They can even tank our credit and cause us to make unwise investing decisions, like the one-third of investors who continued to over-confidently spend on a project even after receiving advice that it was no longer wise.
With so much room for error, it’s no wonder that seven in ten Americans admit to postponing making major financial decisions. The good news is that once you start recognizing your own cognitive biases as they come up, some simple tweaks in mindset can put you back on the path to financial prosperity.