If you have trouble managing money, try looking inside your own head for the answers.

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If you have trouble managing money, try looking inside your own head for the answers.

Many people assume investing, saving and other personal-finance activities hinge on interest rates, obscure economic indicators and other outside factors. Those all play a role, certainly, but psychology also has a lot to do with it.

Studies show that individuals perceive risks and opportunities differently and often react irrationally when it comes to money. They also attach various emotions to money, including feelings of insecurity, guilt and love.

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“I can learn a lot about a person’s problems if I can learn how they react with money,” said psychologist David McPhee, co-owner of Well Being Systems in Scottsdale, Ariz. “It tells how they are about power and self-esteem, and how well they respect others.”

Thus, it’s wise to consider your emotional responses toward money before embarking on any grand plans about budgeting, saving or investing. If you have a financial New Year’s resolution, step one might involve getting to know yourself better.

Most people pick up money attitudes from their parents and pass them along to their children. Some money behaviors seem to be hard-wired into us, making one’s own irrationalities hard to spot. The emerging field of behavior finance has uncovered several odd tendencies in saving and investing, such as the following:

• Sticking with “sure bets.” Many people prefer ultrasafe items such as certificates of deposit that pay a lower return than other types of investments. Such loyalty may reflect a desire to minimize losses at all costs.

• Regret aversion. Individuals who stick with ultraconservative investments often focus on the poor decisions they made before. Individuals may feel worse after making a bad move than not taking any action — even when inaction hurts them, too.

• Framing things too narrowly. People tend to look at each investment separately rather than as part of a broad portfolio. The key is to focus on the overall tone of your portfolio, rather than one or two pieces.

• A bias for the familiar. It can be a problem if you’re afraid to venture into profitable areas such as foreign-stock mutual funds, or if you put all your eggs in one basket.

• Overconfidence. Although many people don’t have faith in their ability to make wise decisions, others overestimate their expertise, especially if they’ve enjoyed an early success or two picking stocks.