YOUR MIND AND YOUR MONEY (Part 1)
Investors are Not Rational; Learn How to Use Your Mind to Combat Money Mistakes
Welcome to this 2 part series by guest contributor, Ornella Grosz about how your mind may hurt your finances. Don’t forget to visit Your Mind and Your Money (Part 2), 4 Misplaced Financial Beliefs that Could Prevent Financial Success.
Investors Want to Make Money
The fundamental goal behind financial decision-making is to make decisions that maximize value—rational decision-making. Unfortunately, we don’t always make rational decisions; our emotions can get in the way. Emotional decision making is part of who we are and done appropriately can enhance our ability to make money. If we let our emotions rule, the results aren’t always pretty.
Trust Your Gut
Sometimes gut feelings are called intuitive decisions. It’s the feeling you get when you know the alternative decision is better. How many times have you ignored it only to find out you should have gone with your gut feeling?
There are times when we make errors in our decisions. These errors don’t always immediately impact us, until later on in our lives. Sometimes these decisions lead to lack of preparedness. If you ignore the gut impression that you need to save for retirement, even though you’re only 28, later in life, you could be sorry and run short of cash for retirement.
Be Aware of Your Beliefs
We make decisions based upon our perceptions, which is our reality. I’ve been fascinated by the phrase “perception is reality”. Perception is based on what we see, hear, and think. We look to make sense of the complex-external world by integrating it with our internal world.
Our internal world is comprised of our beliefs, experiences, and other encounters. When contemplating particular financial decisions, how do we know what is the right decision? What has seemingly become a complex financial world has made even a sagacious lawyer confused about his own finances. To make sense of complex things we turn to our beliefs—part of what creates our perception.
Check out this example:
Let’s say you are in a relationship where you are the saver but your partner is a spender. Your partner justifies spending by saying, “Life is too short. You can’t take money with you when you’re dead.”
On the other hand, you justify saving by saying, “You need to be prepared for emergencies and retirement.”
Each person has their own belief system. These beliefs are based on our perceptions which are based on our experiences. Whether it’s from our upbringing to daily encounters with the world to negative or positive news by the media, etc., many times it is our beliefs that guide us.
I have family members who are hindered by an avoidance behavior. They avoided dealing with money matters and any sort of financial planning. Since these folks did no long term planning, although they earned well during their working lives, they didn’t properly invest to grow their wealth. This caused long term problems in retirement. This avoidance cost them tens of thousands of dollars and immeasurable stress when it came time to retire.
Another friend recounted how her parent’s told her not to worry about debt, since everyone has it! That just is not true!(Barb’s comments!)
So, can our beliefs be misplaced?
Whether you realize it or not, your upbringing has a substantial impact on your beliefs about money. You may have learned about money by watching how transactions transpired in your household or through various financial experiences—directly or indirectly. Your belief’s can certainly be misplaced.
How you look at money and financial matters has a grave impact on your long term wealth.
Next, check out the 4 Misplaced Financial Beliefs that Could Prevent Financial Success in Your Mind and Your Money (Part 2).
Ornella Grosz, CFEd® is financial expert, keynote speaker, author of Moneylicious: A Financial Clue for Generation Y, and member of the National Financial Educators Council (NFEC) Financial Literacy Curriculum Advisory Board. Emerging as the optimistic financial voice during a turbulent and uncertain economy, is an advocate for young adults, women, and beyond (she doesn’t discriminate) to view money differently. She blogs at Moneylicious adding a little spice to money matters. Join her @OrnellaGrosz.
For more mental money thoughts; Kiplinger’s Series; Your Mind and Your Money.
Barb Across the Blogosphere
Carnival of MoneyPros at Aaron Hung.com
Carnival of Retirement at Young Family Finance
Wealth Artisan’s FinCarn at Wealth Artisan
Y & T’s Weekend Ramblings at Young and Thrifty
Yakezie Carnival at The College Investor
Wealth Artisan’s FinCarn at Wealth Artisan
Carn. of Financial Camaraderie at Finance Product Reviews
Carnival of Retirement at Saving to Invest
Yakezie Carnival at Frugal Portland
Carnival of MoneyPros at See Debt Run
What mental mistakes do you make that hurt your bottom line?
image credit; google images chatterbusy blogspot