Ultimately, years of research has told us that all human decisions are based on emotion.This isn't necessarily a good thing when it comes to money as emotion and rationality are like oil and water: they just don't mix. Yet common sense tells us that when dealing with your money, rational input is essential to ensure you make good choices.

How, then, do you inject more rationality into your financial decisions?

Perhaps, by better understanding the role that emotions play, you can make better financial choices. Consider this: everything we buy is based on a achieving an emotional state. If we buy a new car or handbag, it’s not about the physical item itself, the purchase is all about the way it makes us feel. After all, our personality is a collection of feelings, beliefs and attitudes.

We’ve all heard the mantra “Money can't buy you happiness”. This concept is related to whether your values are congruent to what you spend money on. To achieve sustainable happiness, you need to understand why you value what you buy, and what you are ultimately seeking.

For example:

Your goal is to buy and own an investment property.

Ask yourself: Why do you want an investment property?

Possible answer:  ‘To provide me with financial security in the future.'

Ask yourself: Why is financial security in the future important to you?

Possible answer:  ‘So I am not stressed about not having enough money.’

Ask yourself: What will having enough money mean to you?

Possible answer: ‘It will give me flexibility and choices to do what I want.’‍

Ask yourself: 'What will flexibility and choice give you?' 

Possible answer: ‘Feeling of freedom and happiness. Security for owning my home and extras for a comfortable lifestyle.’

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This is an example of someone who is seeking a stress-free state, flexibility, choices, freedom and happiness in life. Their investment property is worthless unless it creates an outcome that leads to these feelings.

It is inevitable that that, as sentient beings, our decisions will be influenced by our emotions. You can, however, control your behaviour, especially when it comes to spending decisions, by understanding and articulating which feelings are going to provide you with long-term happiness. What feelings do you get from an impulse, or even considered, purchase of a new handbag, jacket or shoes? And will you still have those same feelings 12 months after the purchase, or is it more of a sugar-rush hit?

I don’t know about you, but I can easily recall how a holiday I took over ten years ago felt. Looking at photos I took on that holiday brings back those feelings. I’m not sure I could tell you how much I had in the bank that year, or what my favourite purchase was, but I clearly remember the feeling of sitting on a cliff top in Santorini sipping a bottle of water, admiring just how blue and beautiful the view was.

I certainly got value from my exchange of my money and time. What is yours?