Why you Sabotage your Personal Finances (& How to Fix it)

Money isn’t just about numbers. It’s about emotions, biases, and that tiny, irrational voice in your head whispering, “Bitcoin will definitely hit $1M.”

And guess what? Nobody knows if and when it will.

Our brains are wired to make terrible financial decisions. Don't believe me? Let’s break down the psychological traps that keep you broke, using real-world examples, a bit of history, and a healthy dose of data.

Loss Aversion: Why Losing ₹1,000 Hurts More Than Finding ₹1,000 Feels Good

Ever noticed how a ₹1,000 loss ruins your entire day, but gaining ₹1,000 is just… ok so what? That’s loss aversion—our tendency to fear losses more than we enjoy gains.

🔹 Case in Point: In 2023, stock market investors in India panicked and sold ₹30,000 crore worth of stocks after a minor dip, only to miss out on a 15% rally six months later. 

🔹 Solution: Instead of checking your portfolio daily like checking your toxic ex’s instagram, focus on long-term trends. SIP investors who ignored short-term market fluctuations outperformed panic sellers by 7% annually.

(I know I know…S. Naren said SIP investors won't do well if they only SIP which is true if you don't have asset allocation in place or you are investing for anything less than 10 years.) 

Overconfidence: Why Everyone Thinks They're Warren Buffett (But They're Not)

In a 2024 survey, 70% of retail investors believed they could beat the market. Only 2% actually did.

🔹 Classic Example: Remember the crypto lakhpati stories? People saw their neighbor’s ₹10,000 turn into ₹10 lakh and thought, “I’m next!” Reality check: 95% of them lost money when the bubble popped.

🔹 Solution: Take a page from Charlie Munger: “The first rule of compounding is to never interrupt it unnecessarily.” Instead of trying to time the market, just stay in it.

Herd Mentality: Why Your Friend’s NFT is Probably a Bad Idea

If everyone’s doing it, it must be good, right? Nope. That’s how bubbles are born.

🔹 Classic Example: In 1637, the Dutch went crazy for tulips, driving prices so high that a single tulip bulb cost more than a house. Then, the market crashed overnight. Sounds familiar? (Hi, NFT’s 2021/2022!)

🔹 Escape Plan: Invest based on research, not FOMO. If everyone’s talking about it, you’re probably already late.

Anchoring Bias: Why You Can’t Let Go of That Penny Stock

Your brain loves to latch onto the first number it sees, even if it's irrelevant. This is why people hold onto bad stocks just because they were once priced higher.

🔹 Example: If you bought certain penny stocks in 2021-2022 and refuse to sell now because “It’ll bounce back”, you’re a victim of anchoring. News flash: The market doesn’t care what price you bought it at.

🔹 How to Fix It: Base financial decisions on future potential, not past prices.

Confirmation Bias: Why You Only Read Articles That Agree With You

We love information that supports what we already believe. That’s why people who think only equity investing is the best investment only read articles that say, “Sensex to hit 1,00,000 in 2025.

🔹 2025 Reality Check: In the past 10 years, the Indian stock market (Nifty 50) delivered 12% CAGR. But, Gold has given about 9.8% for the last 10 years (not bad at all). 

🔹 Hack It: Actively seek out opposing views. If you're only consuming content that confirms your beliefs, you're probably missing key risks.

Recency Bias: Why You Think the Last 3 Years Predict the Next 30

We assume recent trends will continue forever. They won’t.

🔹 Example: On 15th Feb, 1985, Nikkei 225 (Tokyo Stock Exchange) closed at 12,148.30.On 29th Dec, 1989 it hit 38,915.87. A staggering 33.87% CAGR of the Index for that particular time frame.

The next time it crossed the 38915.87 mark was after 34 years on Feb 22, 2024. 

🔹 What to Do: Don’t make long-term decisions based on short-term trends. Markets, rates, and economies move in cycles. Past performance is in no way a predictor of future performance. 

Availability Bias: Bad News Everywhere

🔹 Example: We judge risks based on what we see & hear most often. If you switch on the news now (especially TV news), it seems like the world is ending, but is it really? Maybe it's just that we are seeing bad news 24x7 because that's what is giving the media the TRPs. 

🔹 The Fix: Look at long-term data, not headlines.

Final Thought: Outsmart Your Brain, Build Wealth

Your brain is a great survival tool but a terrible investor. The key to financial success isn’t just knowing what to do—it’s avoiding what not to do.

If you found this helpful (or mildly entertaining), share it with your financially clueless friends. They need it more than they think. 😆💸