3 reasons you are messing up with your finances

By Larissa Fernand |  22-05-22 | 

If you are not happy with your portfolio or your savings or how your money is being spent, it is probably nothing to do with discipline. It could be strong psychological factors at play. Lack of clarity and too much of attention to the wrong factors could lie behind the failure.

Read on.

  • Mistake: You blindly copy the investment decisions of others.  
  • Reality: You have to figure out what you want your money to do for you.

There is a lot of conversation about tactical asset allocation, economics, strategy, and deep analysis on stocks and funds. What needs to first happen is to link the use of our money with what is important to you.

If you ask people why they invest the way they do, they will probably say that an influencer on social media suggested it. Or a relative did. The ONLY correct answer would be along the lines of, it fit well into my portfolio to give me the highest likelihood of meeting my goals.

Investing is not an end in itself. You must be clear on why the money is invested where it is. If you're not, you're investing based on other people's goals and what you read in the news. Be an educated investor. Have access to really good information. And then overlay that on top of your own personal situation. You've got to be actively engaged in that process, or at least be the co-pilot. 

  • Mistake: You spend to imitate others. 
  • Reality: What makes others feel rich and fulfilled is not the same for you.
René Girard tells us not to ignore “mimetic desire.”

Imagine children at a party playing with balloons. One child suddenly grabs a red balloon and yells: “This balloon is mine!” Inadvertently, all the children drop their balloons and fight over this red balloon. This is so inherent in human behaviour.

Human desire is not a linear process, where a person autonomously desires an inherently desirable object. Rather, we desire according to the desire of others. If we are not aware, others influence us on what to desire. And this is amplified on social media platforms such as Facebook and Instagram.

These social comparisons really impact our financial decisions and emotional well-being. You see the person’s best on Instagram and compare it to your worst. But their failures and disappointments and days of depression are not displayed for the world to see. As explained by French thinker Montesquieu, “If we only wanted to be happy it would be easy; but we want to be happier than other people, which is almost always difficult, since we think them happier than they are.”

A lot of your desires don’t emerge from within, but from ‘outside’. You import your most powerful desires from imitating the desires of other people. So deep is mimetic desire that we are unaware that it is truly not our own but have claimed the desire of another as ours. In fact, the entire advertising industry is founded on the exploitation of borrowed desire.

Getting clear about what really matters to you is incredibly important, and not as simple as it appears. Don’t follow the desires of another. What makes them feel rich and fulfilled is not the same for you. Don't blindly follow the investments of another. It may suit his overall portfolio and risk capability, not yours.

  • Mistake: Your goals are written in stone.
  • Reality: It is completely fine to change your mind along the way. 

Carl Richards has some great advice.

Instead of assuming that your goals are written in stone, change the focus. Instead of aiming to be completely right, just aim at being a little less wrong. How is that done?

Once you decide that your goals are not your destination, but a process and a journey, the pressure goes off. You tend not to worry about being right today. Tomorrow you focus on being a little less wrong tomorrow. What may be important to you today may change tomorrow.

You may decide today that you want to retire at the age of 40. But a few years down the road, you may decide that it is really financial independence you desire and are completely fine with not technically retiring from your job.

If we know where we want to go, it's much easier to decide. Do we want to take a train, a plane, or an automobile to get there? But most of the time people argue about the mode of transport without giving thought to about where they are going. Try The Dan Sullivan question: If we were meeting exactly three years from today, what would have to happen in order for you to feel like the last three years have been a success, both personally and financially?

Make a guess. Where do you think you want to go? Take a step forward. When you take that new step forward, new information will become available. This is part of what it means to be human. Give yourself a little slack. You're going to overshoot it, you're going to undershoot, you're going to come back to it. But you will move in the right direction if you pay attention to the right question.

Here he pictorially tells you how to think.

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