A cognitive bias is an error in thinking that affects our ability to make decisions and judgements. They typically occur when we hold on to our own beliefs, ignoring outside rational advice. If left unchecked, they can wreak havoc on our finances — causing us to ignore saving, spend irrationally, and even make costly investing mistakes.
Making decisions is hard enough. With the added danger cognitive biases pose to our finances, it’s no wonder that 7 in 10 Americans admit to putting off major financial decisions. However, as is the case with all problems, ignoring the situation doesn’t mend anything.
The good news is that with a little bit of mindfulness, you can start to recognize some of the most common biases in your own life. This infographic from Self Lender identifies 12 cognitive biases that affect finances and how to avoid them.