by Understanding Your Financial Mindset Can Help You to Achieve New Levels of Growth
When it comes to achieving one’s goals in investing we have found that people can get trapped with common roadblocks. In fact, over the years we have found there are a myriad of reasons why people either:
- Don’t invest
- Invest only minimally
- Don’t stick with their investment plan
While the individual answers on why someone lands in one of the above three tend to vary we have found there are common themes that keep people trapped into one of the above scenarios. Especially if you have never tried investing, it is essential to understand your financial mindset to help you achieve long-term success.
Those Who Don’t Invest
Not investing is the hardest hurdle to overcome…because you haven’t started! And sadly, no a savings account isn’t investing. We of course are not putting down a savings account, we are big believers in having a traditional savings account; however, with the interest rates that are paid by traditional banks (or even online banks) they aren’t really investments. Savings accounts are merely ways to keep money on hand in case of an emergency, but we won’t digress. Those who don’t divest generally identify in one of the following areas:
Investing is a Punishment
Investing, for many, isn’t viewed as fun. If something isn’t fun then it probably isn’t good…right? We can’t tell you exactly why many look at investing as punishment, but we tend to think it comes from early childhood where people are told “put some away for a rainy day”. A rainy day isn’t looked at fondly and if you are only saving/investing for a rainy day then you won’t stick with it for long as you will feel you would no day could be quite that rainy.
Scared of Losing Money
More often than not people who don’t invest in the markets (stocks, mutual funds, alternative investments, etc.) are scared of losing their capital investment. This is a natural fear and one that is more understandable because it can often take quite some time to save up enough for that first investment…and you don’t want to think of that $3,000 going to $0! To help you overcome this fear we invite you to consider the following:
- When you go on vacation and spend $3,000, do you get a monetary return on that investment?
- If you invested in a Vanguard Fund or major stock (i.e. MSFT, WMT, etc.) what are the odds it would actually go to $0 / per share?
Of course vacations don’t give you a monetary return, but somehow everyone is ok with that “investment” because you can have some fun. If you can think of investing as fun then it will be easy to get started. In regards to a major cap stock going to $0 or a Vanguard fund doing the same, you have better odds of getting struck by lightning. Most of the fears around not investing aren’t well founded and the adage of “scared money never made money” certainly holds true…you just need to jump in and start.
Investing Only Minimally
Investing is very similar to working out…the more you put in the more you get out. When we have spoken to those who want to grow their financial futures and we look at their overall budgets we have found that those who invest minimally fall into one of two common categories of investing.
Thinking of Your Investments as Bill
When you invest minimally the thought process is that the investment is a bill. It is understood that it is something one “should do” but just like not wanting to pay too much for electricity they tend to do just enough to be in the market, but not necessarily enough (as a % of their net income) to experience real growth. Bills, for the most part, aren’t a positive outlook on investing and we would challenge you to avoid thinking of investing as a bill, but rather as an opportunity for a different life/lifestyle or even something that can provide a different opportunity for generations to come.
Goals aren’t big enough
Goal setting for finances are great; however, if your goals aren’t big enough then your investing strategy will only rise to the minimal goal level. For example if you wanted to invest in the market to save for a down payment on a car and your down payment goal was $5,000 but you gave yourself 5 years to achieve that goal then your monthly commitment would be $83.33 a month…and that is without any potential gain in the value of your investment. Setting practical and achievable goals is great; however, if the goal isn’t big enough then you might divert funds into more wasteful activities which could impact your longer term ability for greater financial freedom.
Take the time to really evaluate your goals, make sure they are big enough…to the point where you might not even be sure you can achieve them in a given time period as that will help you to evaluate investments that will really help you to your goal vs. having to do it all on your own through pure savings.
Don’t stick with their investment plan
Investing for greater financial freedom truly takes sticking to a plan, just like a diet or an exercise regimen. For over 8 years Joe and I have had an annual goal of “3,000 miles”. This goal is our annual accountability of running/cycling/swimming at least 3,000 miles in a calendar year and we have a tracking sheet that we fill out daily/weekly/monthly to see how we are progressing on our annual goal. Some years we have barely made it (it still counts when you are riding on December 31) and other years we have missed (broke my collarbone one year which really hampered the miles). While that example is related to working out we have found the themes of sticking with an investment plan are strikingly similar.
Lack of Accountability
Accountability in sticking with an investment plan is a tough one for many because people find it difficult to talk about finances (that’s one of the reasons we started this podcast!). People don’t want to talk about money with their peers and may not feel ready for a financial planner but that doesn’t mean you have to give up on accountability all together. Accountability can be gained through creating a report and talking about your progress with your parents or even a successful relative. Share with them that you have the goal of greater financial freedom and most will be more than happy to look over your investments on a quarterly or annual basis to become a sounding board. And if you can’t find someone you are comfortable with that you know you can always share your goals with Joe and I as we have been through ups and downs and can help provide guidance and thoughts as you progress on your financial journey
Investments are No Longer “Fun”
The same mindset that grenades fitness progress is one that can deter financial progress as well. Investing money each month in mutual funds and stocks can often get mundane (even when you are making money) and when you lose enthusiasm then you might deter funds away to items that won’t help you achieve true financial freedom. If your current investment plan isn’t “fun” anymore we would challenge you to try an alternative investment as that can be an exciting way to try something entirely new and keep your finances headed in the right direction.
No matter where you fall in the financial mindset model the key part is to truly be honest with yourself. Ask yourself if you truly are investing as much as you can for your bigger goals…look at your goals and make sure they are big enough too! As twins we get lucky enough to bounce our ideas off of each other and if you are listening/reading to us then we would be happy to hear where you feel you are in your financial mindset to help you continue your growth.
