How To Achieve Financial Success: 7 Cognitive Biases That Will Help You

How To Achieve Financial Success

How To Achieve Financial Success

How To Achieve Financial Success: 7 Cognitive Biases That Will Help You. As humans, we have biological tendencies that entrain us towards certain behaviors that lead to a feeling of ease and comfort. These natural human biases help individuals make quick, simple decisions. Most people are already familiar with some of these biases, but many don’t recognize the power of how deeply intertwined they are in daily life. Let’s take a look at six key cognitive biases that typically cause people to improve their situation and be more successful with their finances.

We all want to achieve financial success. But sometimes, our own cognitive biases can hold us back. In this article, we’ll explore seven common cognitive biases that can impact our financial decision-making – and how to overcome them.

Bias # 1 The sunk cost fallacy

The sunk cost fallacy is a cognitive bias that can lead to financial success. This bias dictate that we are more likely to continue investing in something as long as we have already invested a lot of money into it.

For example, let’s say you’ve invested $5,000 into a stock. The stock then decreases in value and is now only worth $4,000. You might be tempted to sell the stock and cut your losses. However, if you’re suffering from the sunk cost fallacy, you might hold onto the stock because you’ve already invested so much money into it.

The sunk cost fallacy can lead to financial success because it encourages us to stick with our investments, even when they are no longer doing well. This can eventually pay off if the investment rebounds or we find another use for it. However, the sunk cost fallacy can also lead to financial ruin if we continue investing in something that never improves.


Deciding to continue putting money into a project that has already failed will only result in more loss. Accept that you can’t recover sunk costs, and try to make better decisions in the future.

Bias #2: Group Thinking

The famous novelist Mark Twain said, “When you find yourself on the side of the majority, you should pause and think. This is because you can be influenced to spend money so you can fit in with the people in your group.”

A good example of group thinking

You’ll spend more money on lunch because of peer pressure. You might save money by bringing a lunch bag, but you’re more likely to take part in this habit.


It’s usually better to have the things you can afford; not what others might think of.

Bias#3 The status quo bias

The status quo bias is the tendency to stick with the current situation, even if there are better options available. This can be a problem when it comes to financial success. For example, someone who is happy with their current job and salary may not bother looking for a better-paying job, even if one is available.

The status quo bias can also lead people to continue using outdated products or services, even if there are newer and better options available. For example, someone who has been using the same bank for years may not bother looking into newer, more innovative banks that could offer better interest rates or fees.

People often fall into the trap of the status quo bias because it requires effort to change things. It can be easier and less risky to just stick with what you know. However, in order to achieve financial success, it is important to be open to change and willing to try new things. Overcoming the status quo bias can help you find new opportunities for financial success.

Bias#4 The confirmation bias

The confirmation bias is a cognitive bias that refers to our tendency to seek out information that confirms our existing beliefs. This can lead us to ignore information that contradicts our beliefs, even if it is true.

This bias can be harmful when it comes to financial success. For example, if you believe that you will never be able to save money, you are likely to ignore any evidence to the contrary. This can lead you to make decisions that are not in your best interests, such as spending all of your money instead of saving it.

If you want to achieve financial success, it is important to be aware of the confirmation bias. Try to seek out information that contradicts your beliefs about money. This will help you make better decisions about your finances.


Learn how to see the good in an iPhone

Bias#5 The self-serving bias

Self-serving bias is the tendency to attribute success to our own abilities and effort, and failure to external factors. This bias can lead us to overestimate our capabilities, which can in turn lead to taking on too much risk.

When it comes to financial success, the self-serving bias can help us to stay motivated and keep trying even when we experience setbacks. It can also help us to learn from our mistakes and avoid making the same mistakes in the future.

However, self-serving bias can also lead us to make poor decisions. For example, we may take on too much debt or make risky investments that we wouldn’t otherwise make. We may also fail to save enough for retirement or other financial goals.

Overall, the self-serving bias can be both helpful and harmful when it comes to achieving financial success. It’s important to be aware of the bias and how it might be affecting your decisions.

Bias# 6 The availability heuristic

The availability heuristic is a cognitive bias that refers to the tendency to estimate the probability of an event happening based on how easy it is to recall examples of that event happening. For example, people often overestimate the likelihood of experiencing a natural disaster because they can easily recall examples of natural disasters happening from the news.

This bias can lead to financial success if you use it to your advantage. For example, let’s say you’re considering investing in a new company. You might be more likely to invest if you can easily recall examples of companies that have been successful in the past. This is because the availability heuristic will lead you to believe that the company is more likely to be successful than if you couldn’t recall any examples of successful companies.

Of course, you should still do your research before investing in any company. But, if you keep the availability heuristic in mind, it can help you make better investment decisions.

Bias# 7 The overconfidence bias

The overconfidence bias is a cognitive bias that leads people to overestimate their abilities and underestimate the risks involved in achieving their goals. This bias can lead people to take on too much debt, make poor investment decisions, and generally make bad financial decisions.

However, the overconfidence bias can also be used to your advantage. If you are confident in your ability to achieve your financial goals, you are more likely to take the necessary steps to achieve them. This confidence can give you the motivation you need to stick to your budget, save money, and make smart investment choices.

While the overconfidence bias can be dangerous, it can also be used to your advantage. If you are confident in your ability to achieve your financial goals, you are more likely to take the necessary steps to achieve them.

Key Takeaways

Financial success is not about being perfect, it’s about making smart decisions and avoiding common mistakes. By understanding and avoiding common cognitive biases, you can put yourself in a much better position to achieve financial success. Cognitive biases can have a substantial impact on financial decisions. In this short video, you’ll learn how they occur, and ways you can recognize them in order to make better decisions.

Thanks for reading share your thoughts in the comments and subscribe for more.


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.