Filipino Accountants in DubaiFilipino accountants in Dubai always deal with financial statements that they need to analyze and check for any mistakes. They also develop budgets and must determine which expenses needs to be cut or make the cut. They must be driven by logic and adept in mathematics. There is no room for second guessing or doubt because once an erroneous financial report is released—even if it is only a misplaced decimal point—the future of a company is always at stake.
Filipino accountants in Dubai are not driven by behavioral finance while at work. However, as humans, and the moment they are outside work, they might make faulty financial decisions with regards their personal lives. What is behavioral finance? As a recap, this is the irrational decisions people make on how they spend, borrow, or save money.
On the previous post, we have discussed the first batch of these fallacies. We have learned that we should not compromise our savings even though an item is just “worth a two-month salary”. Money is fungible and no matter how good you are in budget allocation, once you’ve taken other expenses for granted such as loan or debt, your budgeting skills will be useless. You should also weigh the pros and cons of a product before buying it. And expect the unexpected regarding the erratic changes of bargain sale schedules in malls or supermarkets.
Let us continue dissecting other behavioral financial mistakes that we must end this 2016:
Based on the definition in Investopedia.com, it is “when an individual erroneously believes that the onset of a certain random event is less likely to happen following an event or a series of events.” Have you ever put your faith on the outcome of a certain event in luck, fate, by crossing your fingers, or how the stars are aligned? This is the mindset of these individuals.
The examples of these are joining in promos, betting on horse racing and playing the lottery. What is their mantra? “The more entries you send, the more chances of winning.” Well, it should be “May the odds be in your favor.”
Just how many times have you followed a certain trend or bought an item because it is the hottest on the market right now? When buying online, do you hit the “most popular” or the “top sellers” filter button to aggregate your search results? In case you haven’t noticed, you’re not really buying the best item on stock but you’re just following what the majority chose. This is the “herd behavior.”
Human beings tend to overestimate their abilities or skills just because they’ve been in that situation a couple of times. An example of this is having high hopes to win in a contest even when you have to compete with hundreds of contestants. Financial examples of this is investing in stock market and gambling. To avoid being in this kind of situation, always treat every financial endeavor as a new humbling experience and carefully analyze your every move.
This is the flipside of overconfidence. This is the manner of making financial decisions under the veils of uncertainty. People with this kind of behavior expect the worst out of a situation. They are not, in general, negative thinkers but it is easier for them to accept the outcome of their financial decisions if they already anticipate that something bad will happen.
It is either an individual may avoid making a decision for the fear of losing or they will do it for the fear of missing out a great opportunity.
Which one of these behaviors do you want to change? Just make sure it is not included in your New Year’s Resolution list because that is another behavioral fallacy we need to discuss.
If you missed the first part of the article, you can click this link: Part 1: The Financial Mistakes You Must Stop Altogether this New Year