Why the 'right' financial decision isn't always the logical one

With the UK Budget looming next week, anxiety is understandably running high - particularly among those approaching or already in retirement, and anyone with significant savings or pensions.

Against a backdrop of rising inflation  and persistently high borrowing costs, Chancellor Rachel Reeves faces an impossible balancing act.

This has created a perfect storm of speculation and worry, leaving many wondering whether they should take pre-emptive action with their finances.

The dangers of panic decisions

Traditionally, I recommend patience during times of uncertainty and strongly advise clients to resist the urge to react to headlines, rumours or speculation. The mantra "the best thing to do is do nothing" has served many well.

We saw this play out recently when speculation about the abolition of tax-free cash led to a rush of panic withdrawals from pension funds – only for the feared changes never to materialise, leaving many to face unwelcome tax consequences as a result.

The logical approach suggests that making decisions based on speculation rather than facts is rarely wise.

But what happens when logic clashes with our emotional wellbeing?

In our increasingly polarised world, where clickbait headlines and extreme viewpoints dominate the media landscape, it's understandable that financial anxiety runs deeper than ever. We're living in an environment that's "dialled up" and binary, where nuanced middle ground is often lost in the noise.

Sometimes, the numbers on a spreadsheet don't account for the sleepless nights or the constant worry that gnaws at your peace of mind. If you're 62 and losing sleep over potential Budget changes, there's something to be said for trusting your instincts – even if they don't align perfectly with the ‘optimal’ outcome.

This tension isn't new. It's the same dynamic that plays out when we debate whether to pay off a mortgage early or invest the money instead. The pure numbers on the page might favour investing, but the emotional relief of being mortgage-free has its own value that can't be quantified, that is so much more than just the money.

A collaborative approach to financial planning

For me, the key lies in finding a balance between heart and mind – what I call ‘collaborative financial planning’. This approach recognises that good financial advice isn't just about presenting cold facts and expecting clients to follow them. It’s about understanding the whole person, their individual emotions, values, history and circumstances and then blending those with the financial reality.

It involves:

Starting with facts, not feelings: Understanding the actual numbers and probabilities before making any decisions. You need to know what the data says before you can properly evaluate whether your emotional response is proportionate.

Acknowledging emotional intelligence: It’s about not just looking at portfolios and projections; it’s about fears, hopes, lived experience and circumstances.

Creating space for dialogue: Financial planning should be a conversation, not a lecture. You should never feel pushed towards a decision that doesn’t feel right. 

Exploring until clarity emerges: The value isn't in reaching a quick decision, but in thoroughly understanding the trade-offs and implications so that you're confident in and understand the choices you make.

Finding your financial peace of mind

The goal isn't to eliminate all emotional considerations from financial planning – emotions are information too. Instead, the goal is clarity through understanding both the logical and emotional sides of your own personal situation so you can make decisions from a grounded place.

You might find that your gut instinct aligns perfectly with the most efficient financial strategy.

Or you might find that peace of mind comes from a slightly different choice, one that feels more aligned with how you want to live.

Both outcomes are valid when they come from clarity and understanding.

As we await the Budget announcement, remember:  good financial planning is done with you, not to you. It's not about being nudged towards the ‘perfect’ answer on a spreadsheet.  It’s about sitting together, laying out the options, and choosing a path you can genuinely live with. 

Because the point isn’t to win a theoretical game of optimisation.  It’s to be able to look at your decisions and think “this works for my life, right now”.

Often the smartest financial decision isn’t the one that looks best on paper, it’s the one that feels right after all the information and discussion.  The one that you can stick with calmly, and sleep soundly regardless of what the headlines say tomorrow.