Have you ever bought something on sale that you didn’t really need, just because it was “such a good deal”? Or held onto a losing investment way too long because you didn’t want to admit you made a mistake?

Welcome to behavioral finance—the study of why our brains trick us into making money decisions that don’t always make sense.

Your Brain Wasn’t Built for Investing

Here’s the thing: our brains evolved to help us survive in the wild, not to build retirement portfolios. Those same instincts that kept our ancestors alive? They can actually work against us when it comes to money.

Let me share the most common mental traps I see clients fall into (and yes, I’ve fallen into some of these myself):

The “I Knew It All Along” Trap

After something happens in the market, it always seems obvious in hindsight. “Of course tech stocks were going to crash!” or “I knew I should have bought that stock!”

This is called hindsight bias, and it’s dangerous because it makes us overconfident about predicting the future. The truth? The future is always uncertain, no matter how clear the past seems.

What to do instead: Keep a simple investment journal. Write down why you’re making decisions before you make them. You’ll be amazed at how much less “obvious” things were in the moment.

The “But I Already Spent So Much” Mistake

Have you ever sat through a terrible movie just because you paid for the ticket? That’s the sunk cost fallacy—letting money you’ve already spent influence your future decisions.

I see this most often with investments. Someone buys a stock at $100, it drops to $50, and they hold on because “I can’t sell until it gets back to what I paid.” But the market doesn’t care what you paid. The only question that matters is: would you buy this stock today at $50?

What to do instead: Ask yourself, “If I had cash instead of this investment, would I buy it today?” If the answer is no, it’s time to reconsider.

The Scariest Trap: Doing Nothing

Here’s the ironic one—sometimes doing nothing feels safest, but it’s actually one of the riskiest things you can do.

Maybe you’ve been meaning to start investing, but you’re waiting for the “right time.” Or you have a 401(k) sitting in cash because you haven’t gotten around to choosing investments. This is called status quo bias, and it costs people thousands (sometimes millions) over their lifetime.

What to do instead: Automate everything you can. Set up automatic transfers, automatic investments, automatic increases to your retirement contributions. Make the “do nothing” option the one that helps you.

The Herd Mentality

When everyone around you is talking about crypto, or buying rental properties, or investing in the latest hot stock, it’s incredibly hard not to jump in.

This is FOMO (fear of missing out) mixed with herding behavior. We feel safer doing what everyone else is doing. But here’s the problem: by the time everyone is talking about an investment, you’re often late to the party.

What to do instead: Build a plan based on YOUR goals, YOUR timeline, and YOUR risk tolerance—not your neighbor’s, not your brother-in-law’s, and definitely not what’s trending on social media.

The Loss Hurts More Than the Win Feels Good

Studies show that losing $100 feels about twice as bad as gaining $100 feels good. This is called loss aversion, and it’s why people often take too little risk in their investments.

If you’re so afraid of losses that you keep everything in savings accounts, you’re actually losing money to inflation every year. The “safe” choice isn’t always the smart choice for long-term goals.

What to do instead: Match your investments to your timeline. Money you need in 2 years? Keep it safe. Money you won’t touch for 20 years? It can handle some ups and downs.

So What’s the Answer?

I’m not going to tell you to “just be rational” or “ignore your emotions.” That’s not realistic, and frankly, it’s not helpful.

Instead, here’s what actually works:

Create systems that protect you from yourself. Automate your savings. Rebalance your portfolio on a schedule, not based on how you feel. Write down your investment plan when times are calm, then stick to it when times get crazy.

Get a second opinion. Whether it’s a financial advisor, a trusted friend, or even just writing down your reasoning, forcing yourself to explain a big money decision out loud can help you spot when emotions are driving the bus.

Remember that feeling anxious is normal. Your brain is doing what it’s supposed to do—trying to keep you safe. Thank it for the warning, then make your decision based on facts and your long-term plan.

You’re not broken if you’ve made emotional money decisions. You’re human. Your brain is working exactly as designed—it’s just designed for a different era.

The goal isn’t to eliminate emotions from financial decisions. The goal is to understand your biases, build systems that account for them, and make choices that your future self will thank you for.

And sometimes? That means having someone in your corner who can help you see the traps before you fall into them.