There’s a lot more to budgeting than meets the eye. The current budgeting approach fails to consider how behavioral psychology can affect finance management. Indeed, people are said they either need better financial education or stronger incentives to make the most of their money. However, money decisions are also affected by psychological factors that can influence both long-term and short-term strategies. People struggle with future planning because there’s too much uncertainty around us. Where will I be in 5 years? It’s impossible to know how your finances could evolve within this period, as hardships could come unexpectedly. Therefore, it makes sense for financial advisors to also consider psychological behavior science as part of their services. Here are situations where psychology will help make a decision.
The anxiety of homeownership
Homeownership should be an exciting time. However, first-time homebuyers are hyper-aware of the danger of a long-term mortgage loan. Ideally, finding the best home loan rates can help spread payment into manageable installments in the long term. Yet, uncertainty plays a big role in the search for the most relevant mortgage deal. It’s impossible to know how your career might evolve. The pandemic has proven to individuals around the world that there is no such thing as financial safety. As such, future home buyers could be reluctant to take a mortgage without being able to plan the future. Many are also worried about managing the responsibilities that come with a home even with an affordable mortgage loan if their financial situation changes. A financial advisor needs to help find a loan that meets both financial and psychological needs.
The dilemma of buying a vehicle
Buying a car comes at a cost. Your vehicle will require a specific budget to tackle the price tag, maintenance needs, insurance coverage, and everyday commuting costs (including fuel and parking). In other words, there’s more to the car than the vehicle value. However, car drivers are also becoming increasingly worried about road risks. There is no denying that some drivers can be dangerous on the road, as the recent research by CCC Information Services reveals. Figures show that vehicle collisions while being less frequent during the pandemic, have occurred at a higher speed. What this highlights is the fact that a lot of drivers are willing to exhibit reckless behavior on the road as long as they identify the opportunity. As a result, future car buyers may be worried about how potential collisions with dangerous drivers will affect their budget. A financial advisor needs to provide a loan solution that answers those fears too.
The desire for sustainability
The pandemic has encouraged more households to develop a sustainable lifestyle. Unfortunately, sustainability is not without its cost. Individuals who want to invest in sustainability are concerned about how green living will affect their budget. A financial advisor needs to help them clarify priorities both in terms of finances and in terms of environmental aspirations. Trying to replace all lifestyle habits and structural elements with sustainable alternatives is not manageable in the long term. Yet, it makes sense to change our routines as quickly as possible to preserve the ecosystem on the planet. The financial advisor helps people find the best environmental strategy for their budgets.
Fear of what the future might look like can dramatically affect your budgeting skills. It’s time for financial experts to address those fears as part of their services.