we all know that money is an emotional
topic but what we don't realize is that
these emotions play a huge part in our
bad money decisions so in this article I'm
going to share with you five of the
biggest emotional traps that I've
learned from the psychology of money and
how you can avoid falling into them
number one pay the price this is one
that very few people understand that
everything you have and do comes at a
price whether it's a monetary price in
dollars or cents or an emotional price
like fear or doubt or stress nothing is
free and this is especially true when it
comes to investing because the price you
pay isn't just the price of the stock or
the amount you invest in it's also the
emotional volatility and the fear that
comes with it which isn't always
intuitive in other areas of your life
for example if you go to the gym today
it may hurt a bit tomorrow you'll feel
sore and then three months six months
nine months down the line you will see
results but people tend to take these
short payoff periods and apply it to
investing you think that by checking
back at three months or in six months
time the results will show but that is
where the emotional trap comes in let's
say you bought an S P 500 Index Fund in
the 1980s yes one can argue that it went
up 11 000 since then but you would still
have needed to face about 13 years
combined where your Investment Portfolio
was down 20 from its high and eight
months when it was down 50 it's only
after paying that emotional price and
sticking it out through those downfalls
that you would have then benefited from
the compounded results and the longer
you're able to ride out that volatility
the fear the worry the doubt and stay
invested the more your money would work
for you and as housel says good
investing is not necessarily about
earning the highest returns because the
highest returns tend to be one of hits
that can't be repeated it's instead
about earning pretty good results that
you could stick with which can be
repeated for the longest period of time
number two the magnitude of chance this
was a bit of a difficult one for me to
digest that first but once you
understand it you'll change the way you
think about earning and who to learn
from when it comes to making money there
are so many elements that come into play
that are outside of your control and
they have a bigger impact on the outcome
than what we would have done even
intentionally for example our upbringing
our ethnicity gender which part of the
world we live in and housing states that
one of the main reasons we fail to
become financially successful is because
we underestimate the role chance plays
in our financial lives ignoring chance
or luck is dangerous because many people
try to gain wealth by imitating the most
exceptional successful people if we see
someone make a lot of money very quickly
we tend to look at that person and say
okay how does she or he do that and how
can I copy that to be just as successful
but due to the fact of chance locked the
right place at the right time the odds
won't necessarily stack up in our favor
he uses the example of Bill Gates Ultra
successful huge net worth and you can
say he achieved his success because he
was a super smart and super hard-working
but what we don't always think of is the
fact that he also went to the only high
school in America with a computer and he
was literally one in a million teenagers
who had access to a computer so having
that accessibility was the chance
element in his story that contributed
massively to his financial success
forget to look at the wider picture what
were their circumstances when did they
do it what was the wider market like how
long have they done it for so house
explains instead of focusing on the
individual it's better to focus on
broader patterns to maximize your
probability of success so if one person
did X to get wealthy but many people did
why to get wealthy doing why will have a
bigger probability of you gaining
financial success number three wealth is
what you don't see this is probably the
most important one on the list and one
that as a society we often fail to see
we are social beings so it is no
surprise that we need social validation
but actually craving for social
validation makes us worse off and a
reason why so many of us failed to
achieve financial success is because we
confuse use being wealthy with being
rich rich people can lack wealth but we
can't see that they do their current
income is high so they have the money
available to be able to spend on
expensive items and tangible items and
so we confuse perception with reality
whereas on the other hand it's hard to
identify a wealthy person because they
save their money you can't go into their
bank account and see the money that
they're not using Hope from the book
that says rich is what we see what we
are wearing the bag we're holding the
jewelry we're wearing and on the other
side wealth is what we don't see it's
the cause not purchased the diamonds not
bought to the renovations postponed the
clothes will gone and the first class
upgrades declined so knowing the
difference between being wealthy and
being rich is really important because
we learn by imitation and so knowing who
to imitate and who not to imitate can
help us grow our money and grow our
wealth you understand the difference
between being rich and being wealthy and
start learning the habits of what a
wealthy person does you can prevent
yourself from draining away your money
and protect it number four use money to
buy control this is the lesson that has
probably resonated the most with me and
whenever someone asks why I'm not
spending money on buying this or buying
that it's because my sole focus is to
use that money to create a life that I
want using your money to buy time and
options has a lifestyle benefit few
luxury goods can compete with and money
buys you optionality and control of your
life more than our salary our corporate
title or Prestige of our job instead to
do what we want when we want with the
people we want that is one of the things
that brings the most happiness that
comes with the privilege of having
wealth it may come with sacrificing on
other things for the time being and I
also have a specific articleon the things
that I no longer buy to and my plan to
get to this stage but it's all in the
name of focusing on what is really the
best value for your money and the big
ticker items and that is to create a
life that you have always wanted and
having the freedom and control over your
time number five contrasting narratives
we're all very familiar with this one
but very few of us implement it we all
know having money and and being able to
manage it gives you control but how much
money should you have well there are
studies that show how your income has
diminishing returns on your personal
life satisfaction and Beyond a certain
point more money stops buying you
further increases of Happiness Until you
realize that the goal post on how much
you want to earn will keep moving the
advice in the book is to know when to
say enough there is a limit to the value
that money can bring into our lives it's
about finding the balance between
accumulating wealth and preserving what
truly matters things like our
relationship health and your overall
well-beings too often people get caught
up in the pursuit of more and more money
more possessions more success without
taking a step back and considering the
potential consequences and this can
cause sacrificing our physical and
mental health the damaging relationships
or even risking what we already have and
our financial stability in the pursuit
of making more and in the book he gives
examples of how Ultra successful people
risk everything they have in the pursuit
to get more and damage their reputation
and everything they have they risk it
all just to get more money that they
didn't even need it's easy to forget
this when you're seeing people around
you spending their money and all the
marketing messages telling you how you
should be spending yours on one side
you'll get the messages saying you need
to live frugally to be rich and you'd
save to be rich and on the other side
you need to quit your job and be
traveling and be living your best life
and with these contrasting narratives
it's very easy to Lose Yourself within
that money up to a certain point will
buy you freedom and control and then
after that that value needs to come
intrinsically know who you are and what
matters the most to you so those are the
five most important lessons that I've
taken away from this book highly
recommend it and I've been applying it
to many parts of my life I'm interested
to know if you have fallen into one of
these emotional traps either
subconsciously or consciously and now
that you're aware of the trigger what
you'll be doing to come out of this
cycle thank you for watching don't
forget to subscribe if you haven't
already and I hope to see you in my next
article
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