When it comes to managing money, many people believe that it’s all about knowledge and facts. If you know how the stock market works, you’re in the clear, right?
Unfortunately, it’s not that simple. Making good decisions with money is less about understanding complex financial instruments, and more about empathizing with your future self.
It sounds like a weird thing to say – and it is. But it’s also true.
Think about it. The decisions you make today regarding your finances have a massive impact on your life when you’re forty, fifty, sixty, and beyond. The choices you make right are literally determining your money future, twenty, thirty, or forty years from now.
But if you struggle to manage your money, what can you do? Are there any tools you can learn to get the financial life you want?
It turns out that there are. Here’s a rundown:
Stop Over-Analyzing Everything You Do
Life doesn’t follow a set formula. There are always unexpected events, twists, and turns. Think about your own life. When you think about the circumstances that led you to this point, they probably seem quite random!
Many people today, though, are in the habit of over-analyzing everything they do with their money. They get buried under the mountain of information on the internet, worrying about every minute detail of their financial lives. Should they invest in a certain stock? Should they buy a certain property? It’s a nightmare.
People also allow themselves to be bombarded by financial information. The media continually attempts to create new stories about markets and what is likely to perform well in the future. And it can become confusing, sidetracking you into spending your time going down the rabbit hole instead of just making prudent, long-term decisions.
The trick here is to develop a filter that eliminates 99 percent of the information you receive and just focuses on what really matters. The truth is that the stock market will continue to generate returns over the long haul. And usually, they’re pretty decent. Focusing on individual stocks is a mug’s game – and not something the average retail investor should get into.
Stop trying to sort through what’s true and false, and instead focus on what works according to basic economic principles. Companies will always make profits. All you need to do is buy stocks as a whole, and you’ll generate returns that beat inflation over time.
Don’t Use Moral Language To Describe Your Financial Decisions
A lot of people get into the habit of using moral language to describe their financial decisions. They’ll tell themselves that it’s “right” to put money into their retirement account, and it’s “wrong” to spend money on holidays.
This layering of morality on top of financial decisions is a little strange. For the most part, there is no ethical dimension here. So applying morality seems more like an attempt to make yourself feel guilty. A better way of looking at it is to ask whether a certain expense “works for you.” This approach to money matters changes your perspective. Money becomes less of a moral object and more a tool you can use to build a better life.
How you maximize your use of this tool is very much up to you.
You could take the view that spending a lot of money today makes sense because you might not be able to enjoy yourself so much in the future.
Conversely, you could conclude that it’s better to save your money now and build wealth for a future project.
Neglecting your retirement savings isn’t necessarily a bad thing. It just increases the likelihood of hardship when you get older.
Test Your Financial Decisions First
Whenever you buy something big, you usually want to test it out first to make sure that you’re getting real value from it. That’s why car dealerships offer people test drives. They want buyers to have that “ah-hah” moment when they discover that the vehicle is something that will provide them with genuine value.
You can take the same approach to your financial decisions, testing the waters first before actually committing. This way, you can ensure that you’re actually getting real value from your purchases.
So what does this look like in practice?
Essentially, it means doing mini versions of your big purchase.
Let’s say, for instance, that you want to spend a month hiking in various locations around the world. Good for you. However, you might discover while you’re doing it that it’s not actually that enjoyable. For that reason, it’s a good idea to go on a shorter set of hikes in your home country first to find out whether it’s something you’d be interested in doing. Ideally, you should be even more excited to go traveling around the world after your mini-expedition. But sometimes, you’ll find that you’re not.
The same goes for living in a new location. At first, setting up your home somewhere new can feel very exciting. But after you visit several times, it can become much more mundane. Ask yourself whether you’re still pumped to live there.
Recognize That Hard Financial Decisions Aren’t Necessarily A Bad Thing
Financial lending services, like Plenti, know that choices matter. What you do today, they say, can make a big difference to your life tomorrow.
As you go through life, you’ll sometimes encounter hard financial decisions. However, just because a situation is difficult, it doesn’t mean it’s bad. In fact, it could actually be a good thing. Struggling to come down on one side or the other could mean that you’re facing a choice between two equally good options.
You may have faced a decision like this before. Perhaps, for instance, you’ve considered giving up your day job to pursue what seems like a more lucrative project. It’s a risk. But it’s also a hard decision. It’s the choice between a low but steady stream of income, and a chance to earn a vast sum of money.
Hopefully, this post will help you improve your financial decision-making. Being strategic with money can help you build the life you want.