Go ahead and admit it.
When you look back there is probably a past financial decision that you regret and wish you had made differently. You keep ruminating about it from time to time and just can’t seem to let go of this financial mistake.
Maybe you bought an expensive gadget that is now collecting dust, a time share package that has not been used in years or a club membership that expired without ever being used.
It could even be an investment decision – A complex insurance product that you bought without understanding the costs involved or when you plonked some cash on a stock based on a colleague’s tip.
And then there are the decisions that you were very close to making but did not make. Like buying a piece of land that was available for peanuts in a remote area. That area has now turned into a bustling commercial hub.
All of these financial decisions or non-decisions have something in common – They trigger a very strong emotion of financial regret whenever you think about them.
Coping with Regret of Financial Decisions
Letting go of your past financial mistakes is important to attain financial satisfaction. As one of the 4 pillars of financial wellness, financial satisfaction is key to your financial wellbeing.
So here are 5 things you can do to let go of past financial mistakes.
Imagine a Worse Alternative
It is our tendency to imagine that things would have turned out much better in our financial life if you had not made that mistake. That is at the root of your financial regret since it is human nature to keep lingering on those feelings.
Let us say you trusted someone for investment advice and ended up losing an amount of X dollars. The regret of that action will keep gnawing at you from within and you just can’t let go of that financial mistake.
Now for a moment think if that had not been the case. What if you had continued trusting that person for the next 5 years when it came to making financial choices?
And then one fine day he broke your trust on a financial investment where you lost 10 times the amount of money compared to your present mistake.
Would that not have left you even worse off?
When viewed in this perspective, the current mistake that you are regretting about could be a blessing in disguise.
Take your current mistake as a cost of avoiding a future that could have been much bleaker. You still have the power to recover from this set back compared to not becoming wiser to his motives till it was too late.
Don’t Let Hindsight Cloud Your Memory
We are all geniuses with the benefit of hindsight. Hindsight bias makes us believe that we could have easily predicted the future and the financial mistakes could have been easily avoided.
But it can be hard to remember clearly what you felt like when you made that decision in the past. You did not have all the information that you have now and had to make a call.
The new information that has become available since that time can make things look clearer in your mind than they actually were.
So don’t let hindsight cause you to act overly harshly on yourself. Hindsight can easily lead to self-criticism which is totally unwarranted.
That complex investment product you bought has turned out to be a dud now. But it was sold to you by someone you had blindly trusted on previous occasions when making investment choices.
He broke your trust, but there was little to alert you that this was going to be the case back then. Everything he had suggested till that time had turned out ok. There were no signs that things were about to turn with that particular investment.
So don’t beat yourself up emotionally for how you could have not seen it coming. Someone else in your place would have likely made the same mistake too.
It is simply not about your poor judgement so stop being overly critical of yourself.
Let Go of the Mistake, Not the Lesson
Although it easy to get all negative when thinking about a past financial mistake, there is something positive in each of those mistakes. That positive is the learning you got out of it and using it when making future financial choices.
A poor financial choice you made in the past can help you avoid a similar mistake in the future. You will continue to face new situations similar to what you encountered in the past.
Using the learning from the past can help you spot those mistakes before they happen again.
So the next time that someone pitches you a new investment, you are much more likely to do your own analysis before putting any money in it.
Having been hurt once by blind trust, you are much more likely to acquire financial literacy to make the correct financial decision.
A financial mistake you have experienced and learnt from is worth reading 10 books on the subject. Books or videos can’t replace the value that comes from personal experience.
More importantly, the lessons you gain from your financial mistakes will allow you to make better choices in other parts of your life as well.
Don’t Try to Overcompensate
Regret of past financial mistakes can make us take some actions today to over-compensate for a poor decision we made in the past.
If you lost some money on a complex investment, you might be tempted to double down on a new investment bet to recover your losses. That could make a bad situation worse.
It is critical to try to make a clear cut from the past. That chapter is closed and should not have any role to play in the money choices that you are making now.
Don’t use your present actions to act as compensation for what you did in the past. What you learnt from that past financial mistake is compensation enough.
Any fresh decisions you make should be purely based on your requirement at this point in time. Don’t let the baggage of the past cloud your current or future decisions.
Help Someone Else Avoid the Same Mistake
Use your learning from your financial regret to help someone else avoid the same mistake. You will get a huge positive rush from the act of helping someone facing a similar situation.
Not only will this help to let go of your past financial mistake, but will fill you up with renewed vigour and enthusiasm when facing your future financial decisions.
Learning from mistakes can be a powerful outcome. However, the act of sharing that learning to prevent someone else from making the same (or similar) mistake will help you overcome your financial regrets much faster.
Most financial mistakes we make share a common thread – Choosing investments we don’t clearly understand, trusting someone blindly for advice, acting on impulse etc.
There is hardly a mistake that is unique to you as an individual. Therefore most mistakes we make and what we learn from them have real value for others that they can learn too.
Letting others learn from your mistakes can leave you with a strong inner positive feeling. These positive feelings can go a long way to dilute any feelings of financial regret you still experience.
Similar to the other major decisions we make in life (such as the choice of a career or spouse), our past financial decisions can play a major role in how we assess the overall satisfaction of our financial life and wellbeing.
Everyone makes financial mistakes at some point in time. That is part of being human and how we all learn. When it comes to personal finance, learning by trial and error is the norm, not the exception.
There is hardly anyone who has not set a wrong foot at some point when it comes to personal finance. We all learn new things about money as the journey continues.
Letting go of your past financial mistakes becomes much easier when you realise that you are not alone in making these mistakes.
By using the 5 steps outlined above, overcoming your financial regrets will become much easier and leave you in a much stronger position to make better personal finance choices ahead.