This has been taken from Morningstar Australia and authored by Vanessa Stoykov
Unlearn what you know about money
As the creator of No More Practice and founder of our production house, Evolution Media Group, I have long seen the challenges of a technical industry, like financial services, in finding a commonality and way of communicating with people that is interesting, short-form, and easy to digest.
I have also seen the challenges people, myself included, have around knowing what to do to build their wealth for the long term, while paying for the necessities along the way, and having some fun.
By spending the last 23 years in financial services, I have had the opportunity to learn from some of the sharpest minds around money and investing. To get the best out of this knowledge, I came to the realisation that I had to unlearn a lot of things I thought I knew.
As a contributor to Morningstar, I will be sharing my journey with you--about what I needed to unlearn about money to really grow my wealth. I will also be talking to interesting people from all walks of life about what they had to unlearn to get where they are today.
This lesson covers availability bias, which really means believing the information you have at hand--even if it's not the right information to make a decision upon. This is as true in life, as it is in investing. However, with the advent of the media and its sensationalised version of events, I do believe it has become harder to ignore the information.
I remember watching the news around the time the Global Financial Crisis, or GFC, was happening and my heart rate increasing as it really felt as if the world was ending. So too when Trump was elected. However, it wasn't, and it didn't. If you believe the alarmist information at hand you may never truly invest for the long term again.
How do you cut out the noise, and stay focussed on the bigger picture?
For a start, I believe in setting a strategy with a quality financial adviser--one that lasts the distance of your long-term financial goals. You need to understand the strategy and more importantly, stick to it. That's it. Don't question it, regret it, or second guess it. If you believe in the ability of that strategy to create the long-term wealth you need, then hold steady.
Sounds easy, right? But it's harder than it sounds. Staying the course is like sailing the ocean--it's never all smooth seas.
I have gotten to the point where I ignore large chunks of the news. Not because I don't care, rather because I care a lot. Don't believe what everyone is saying. Get great advice and stick to your strategy. Cutting out the noise, and deciding not to waste emotional energy on worrying about the day to day, is a classic lesson to unlearn.
While it's not the only one, in this day and age, it's a big one.
Unlearn Desire
I have a feeling I could be seen as the killjoy of the century by stating that one of the things we need to unlearn about money is desire.
What do I mean by this? Well, it's nothing to do with physical passion, but everything to do with want, rather than need.
It's something that took me a long time to grasp the concept of--and to be honest, at times I still struggle with it.
A classic example for me has always been cars. Since I was a teenager in Gunnedah admiring V8 Commodores, I have always loved sports cars. I promised myself by the time I turned 25, I would be driving a BMW. This was due to the fact that, as a kid, my family watched Sale of the Century. I always equated smart people, and ultimately winners, as having this car as it was the ultimate prize.
This resulted in me spending a large portion of my time obsessing over how I was going to have this car. Funnily enough, this is the closely related to another "unlearn" lesson around belief, but more on this next week.
I believed I would get there, and I did--a week before my 25th birthday, I took delivery of a bright blue 3 Series. If only that was the end of the story. Alas, no. I can say that since then I have owned seven sports cars.
Now when I say I "owned," what I should say, is "financed". The funny thing about cars is that the new car smell and feeling wears off. It usually took me only a couple years before I was eyeing off the next car, and desiring that feeling of new again.
The flipside of this desire, however, is the fact that you never actually own anything. It finally dawned on me that owning a car was not an asset--it was a liability.
Too often it is easy to want the newer things--the bigger TV, the latest outfit, new golf clubs, or a bigger house. What this desire does, however, is trap us. I found I was working to pay these cars off--trading them in and starting at zero again. Too often the things we want end being the things that stop us from attaining financial freedom, because I have learned in my forties that the person with the cash wins. Not the person with the best cars, outfit, or home. A lot of the time, these things are paid for on credit--and ultimately end up costing us way more than the asking price.
Now we drive our people mover with pride (fully owned after five years of paying it off) and my Mercedes convertible (okay, some things never change!) for the long term. I don't look at other cars or spend time thinking about what is next.
I also put more focus on buying investment pieces (whether it be clothes, or bags, or anything else) that I love and that will last. A funny thing I have noticed over the past 20 years of working with some incredibly wealthy people in finance is that most of them are obsessed with getting value.
They drive cars for 10 years, live in the same houses, and only buy when things are a bargain. While I used to question why, I now know the answer--it is the obsession with finding value, eliminating desire for things that really trap us, and slowly accumulating wealth that creates long-term financial freedom.
Freedom, after all, is what we all desire.
Unlearn Time
Of the big five lessons that need to be unlearned about money, I think time perhaps is the biggest missed opportunity.
Why? Simply because the biggest trap of time is that you always think you have plenty of it--and because of this, tend to miss out on one of the biggest opportunities to grow wealth almost effortlessly--as it's time that allows your money to make money for you in the world of investing.
In Australia, our government had the incredible foresight to introduce superannuation--meaning those who start work are putting away 9.5% of their income into investments to support themselves in retirement. However, it has been proven that 9.5% will not be enough to fund an adequate and dignified retirement--and for many will only cover about 30% of living expenses.
So, why is time a hard thing to master and unlearn?
I believe it is because it goes to the very heart of us being human and our unwillingness to acknowledge our own fragility and ultimately mortality.
Sounds deep? It is. Too often we want to live in the moment (which is not always easy), enjoy ourselves now, and let tomorrow figure itself out.
I know I certainly did. I spent my 20s acquiring things I wanted, and chasing the experiences that defined my view of what a good time was. Quite frankly, I don't regret it. What I do regret however, is that I did not have the foresight to tuck a little away and invest it along the way.
When I think of all the clothes, shoes, cars, and stuff I spent my money on, I wish I had that little bird on my shoulder telling me to tuck 10% of it away. Not in a bank account, but in an investment account.
To be honest, I don't think I even knew what a managed fund or a stock was then, or how to access them. It was the early days of the internet, and the wealth of information and easy access was not there. I did not have family who knew anything about it, and it certainly was not taught at school or university.
Consequently, I missed one of the biggest easy wins in my life when it comes to money. Time passed, as it always does. Children arrived, and nature kicks in, wanting to give your kids everything you can. This becomes the focus financially, and again, time passes, and the opportunity to make my money work for me slipped further behind.
My awakening to the unlearning of time came during my 40s. Perhaps that is when most of us finally start to understand that time moves quickly, and that we don't have all the time in the world. It's certainly been that way for me and many of my friends.
This is why I have dedicated myself and my company to awakening and helping Gen X unlearn money in time to be able to prepare for the last third of their lives and be able to live it exactly the way they want.
There is still time to change habits around money and start investing. It all begins with an awakening that we should be doing more. For time stops for no man or woman.
