You’ve probably done it. You keep a share that has halved because selling it would make the loss feel real. You put off reviewing your pension because the paperwork is in a drawer and the drawer is a long way off. You tell a mate down the pub you’ll “ride it out” when what you mean is you haven’t looked at it since 2019.
None of this means you’re bad with money. It means you have a human brain, and that brain was built to escape predators, not to run a self-invested personal pension. The good news is that you can learn to notice when your own thinking is leading you astray. Psychologists call this metacognition. I call it checking your working before you hand it in.
What are the most common thinking traps with money?
The Financial Conduct Authority has spent years studying how real people make financial decisions, and its research reads like a list of things your 45-year-old self has done. These are the ones that hit people in their peak earning years hardest.
Loss aversion. A loss hurts roughly twice as much as a gain of the same size feels good. So you hang on to a falling investment hoping to “get back to even”, while the money could be doing better somewhere else.
The sunk cost fallacy. You’ve paid into a pricey legacy pension or a whole-of-life policy for 15 years, so it feels wasteful to change. But the money you’ve already paid is gone whatever you decide. The only question is what happens to the next pound.
Anchoring. You bought the house for £350,000 in 2021, so in your head it’s “worth” at least that, whatever the estate agent says. Or you remember a fund at its peak and treat that number as its true value.
Overconfidence. Men, the research consistently finds, trade more often and rate their own skill more highly than the results justify. Every trade costs something, and on a long enough timeline the costs add up.
Present bias. Future you is a stranger, so present you would rather have the new bike. That’s why the pension review keeps getting pushed to “after Christmas”.
Herding. Everyone at work is talking about the same tech share, the same crypto token, the same buy-to-let in Manchester. Popular feels safe. It isn’t.
Why does a clever person still make bad money decisions?
Because intelligence and self-awareness aren’t the same thing. Being good at your job, sharp with spreadsheets or brilliant at the pub quiz doesn’t protect you from bias. If anything, confidence earned in one area tends to spill into areas where you haven’t earned it.
Bad money decisions also rarely feel like decisions. They feel like instinct, or common sense, or “just being sensible”. A quick yes to a cold-caller who sounds professional. Getting your stocks and shares ISA out the week markets drop, because cash feels safer. The trap works because you don’t notice it closing.
Fraudsters know this better than anyone. The FCA’s ScamSmart warnings describe the same pressure tactics again and again: time-limited offers, promises of unusually high returns, flattery about how sophisticated you are. Every one of them is aimed at a known bias. Urgency feeds present bias. “Only a few places left” feeds herding. “For experienced investors like you” feeds overconfidence.
The money you’ve already spent is gone either way. The only decision that matters is what happens to the next pound.
How do you train your brain to spot its own mistakes?
You can’t switch biases off. What you can do is put some speed bumps in front of them. These work best as habits rather than heroic acts of willpower.
Wait 48 hours. For any money decision over a set amount (pick your own; £1,000 is a decent start), sleep on it twice. If the opportunity vanishes in that time, it was probably designed to. Legitimate investments and providers will still be there on Thursday.
Write one sentence first. Before you buy, sell or switch, write down why, in a single line. “I’m selling because I need the cash in 2027” is a reason. “I’m selling because it’s dropped and I feel sick” is a feeling. Seeing it written down makes the difference obvious.
Ask the fresh-money question. For anything you already own, ask: if I had this amount in cash today, would I buy this exact thing? If the answer is no, the only thing keeping you in is the sunk cost or the anchor.
Run a pre-mortem. Imagine it’s three years from now and the decision has gone badly. What went wrong? This flushes out the risks your optimism has politely ignored.
Take the outside view. Instead of asking “will my plan work?”, ask “how do plans like this usually turn out for people like me?” Most people who try to time the market or pick winners do worse than they expected. You’re probably not the exception, and that’s fine.
Keep a decision diary. Note big money calls, your reasoning and how sure you felt. Look back a year later. It’s humbling, and that’s the point.
Make your biases work for you instead
The smartest trick is to stop relying on willpower at all. Automatic enrolment into workplace pensions is the best example in the UK. It uses inertia, the same laziness that stops people reviewing their pension, to get millions of people saving. Most people stay in once they’re enrolled, simply because opting out takes effort.
You can do the same thing deliberately. Set up a standing order into your ISA on payday, before you get a chance to spend the money. £200 a month for 20 years is £48,000 before any growth, and you’ll barely notice it going out. The ISA allowance is £20,000 for the 2025/26 tax year, so most people won’t hit the ceiling.
Pension contributions work in your favour here too. Thanks to tax relief, a basic-rate taxpayer who puts £80 into a relief-at-source pension sees £100 land in the pot. Higher and additional-rate taxpayers can claim more back through Self Assessment. Scotland has different income tax bands, so if you live there your extra relief depends on which Scottish band you’re in. Either way, the boost is easier to grab if contributions happen automatically rather than whenever you remember.
Turn off the noise as well. If checking your portfolio daily makes you want to fiddle with it, check it quarterly. Investments you don’t look at can’t trigger loss aversion.
When to get a second brain on the job
Some decisions are too big, too permanent or too emotional to make on your own: taking a lump sum from your pension, transferring out of a final salary scheme, downsizing, or deciding how to pass money on. These are exactly the moments when biases do the most damage, because you only get to make them once.
If you’re 50 or over and have a defined contribution pension, Pension Wise offers a free, impartial guidance appointment on your options for taking the money. MoneyHelper, which is backed by the government, has free tools and guidance on pensions, saving and debt. For personal recommendations, use an FCA-regulated financial adviser, and check the firm on the FCA Register before you hand over anything. A good adviser is useful for their knowledge, but also because they’re one step removed from your feelings about your own money.
In short
Thinking traps such as loss aversion, the sunk cost fallacy, anchoring and overconfidence quietly cost people money, and being clever doesn’t make you immune. You can’t switch them off, but you can slow them down: wait 48 hours, write your reason down, ask whether you’d buy the thing again today and automate your saving. For the big, one-off decisions, use Pension Wise, MoneyHelper or an FCA-regulated adviser as your second brain.
Sources
Midcent Money
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
