Why Behavioural Finance Could Be the Missing Piece in Your Financial Plan

Most people assume money decisions are all about numbers. If the spreadsheet adds up, then the choice is clear. Yet, if that were true, nobody would panic-sell during a market dip, keep savings in cash while paying interest on a credit card, or chase “hot tips” that almost never work out.

The truth? Money is rarely just maths. It’s emotions, habits, and psychology. That’s where behavioural finance comes in – the study of how our human biases shape our financial choices. And when it comes to long-term financial planning and investing, ignoring it can quietly derail even the smartest plan.

Illustration of a human brain split into two halves – the left side labelled “Logic” showing concepts like discipline, compounding, and long-term growth, and the right side labelled “Emotion” showing fear, greed, and herd instinct. The image highlights the conflict between rational decision-making and emotional reactions in investing and financial planning.

The Human Side of Money

Traditional finance treats us as rational calculators who behave predictably, but behavioural finance recognises we’re human. We have fears, hopes, and blind spots – and they all sneak into money decisions. Why…because our goals, aspirations and desire to be okay really does matter to us.

A few of the most common behavioural biases:

• Loss aversion – research shows we feel the pain of a £1,000 loss about twice as strongly as the joy of a £1,000 gain. It’s like a football fan remembering every relegation season but quickly forgetting mid-table stability.

  
  

• Overconfidence – believing we can “beat the market” when data shows very few manage it consistently. It’s the financial equivalent of Sunday league players thinking they could match a Premier League striker.

  
  

• Herding – following others into trends, bubbles, or crashes. Like a pub crowd rushing to one end of the bar because “something must be happening”.

  
  

• Mental accounting – treating money differently depending on where it comes from. For example, spending a bonus on a holiday when you’d never dip into your salary for the same trip.

These biases are deeply human. They don’t mean you’re bad with money, they just mean you’re normal.

Why This Matters for Financial Planning

A financial plan isn’t just about charts and forecasts, it’s about behaviour. The best investment strategy in the world won’t work if you abandon it at the first wobble.

Here’s how behavioural finance fits into planning:

• Building realistic expectations – if you know markets will fall at some point, you’re less likely to panic when they do.

  
  

• Creating automatic habits – regular saving, pension contributions, and diversified portfolios reduce the need for emotional decision-making.

  
  

• Linking money to meaning – focusing on goals like “having enough to retire at 60” is more powerful than chasing abstract numbers.

  
  

• Having a coach on your side – sometimes the most valuable thing an adviser does is talk you out of making a mistake.

  
  

Think of it like training for a marathon. The plan matters – the miles per week, the nutrition, the pacing. But what really gets you across the finish line is discipline, resilience, and someone to remind you not to sprint at mile 3 because “everyone else is doing it”.

Behavioural Finance in Investing

Markets go up and down. That’s a given. The challenge is sticking with the plan when they do and not making decisions that will cost you in the long run.

Illustration of the emotional journey investors go through, from confidence to fear and back again. It highlights why managing emotions is key to long-term investment success.

Vanguard, Dimensional, and Morningstar have all highlighted that the real value of good advice isn’t about stock-picking or timing markets. It’s about stopping investors from sabotaging themselves. This is sometimes called “adviser alpha” – the value added by coaching and behavioural discipline.

For example:

• During the Covid crash in 2020, many who sold investments in fear locked in losses and missed the recovery.

• Long-term investors who stayed the course often ended up better off simply by not reacting.

It’s not about nerves of steel. It’s about having a framework and support system to keep perspective when headlines scream crisis.          

How To Bringing It All Together

At its core, financial planning is less about predicting the future and more about preparing yourself to handle it. Behavioural finance gives us the tools to do exactly that.

The maths matters. Tax planning, pensions, investments – all vital. But mindset matters more, because it’s your behaviour in tough moments that determines whether your plan succeeds.

So, next time you feel the urge to follow the herd, panic at a headline, or “just wait until markets calm down”, remember: this is the moment behavioural finance was built for.

Are You Looking For Help?

If you’d like help putting this into practice for your own finances, you can book an initial chat with one of our experienced Financial Planners by CLICKING HERE!

The journey from financial anxiety to peace of mind and how positive behaviours can build lasting financial security.

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