Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own. -Mohnish Pabrai
Some of life’s mistakes are more costly than others. One may not rear its ugly head until many years down the road, while another is capable of delivering an immediate knockout punch. Money mistakes are able to do both.
Odds are you’ve made some pretty good money decisions, and you’ve made costly mistakes as well. Nobody is immune from mistakes. None of us are smart enough, lucky enough or insightful enough to completely eliminate mistakes from our lives.
But you can take steps to improve yourself as a money steward and investor, and elevate the state of your overall financial wellness by minimizing the frequency and severity of your mistakes, learning important lessons from them and correcting course as necessary.
YOU are your money’s worst enemy
We may not realize how emotional we can become over money.
The fact is that unchecked emotions can lead to costly mistakes when it comes to money, potentially making us our money’s worst enemy. The operative word is “unchecked.”
First, don’t listen to advisors or finance writers that tell you to not become emotional about money. If you have a pulse you will be emotional about your money. Period. Not the money, per se, but what it means to your well being. Money drives the health and welfare of your family. Money puts a roof over your head, and food on your children’s plates. Money is the seed of your new business idea. Money is your peace of mind in retirement.
So, yeah, money will make you emotional.
It’s when our emotions run unchecked that the mistakes start to pile up.
Face it, we’re human, and no articles, books or blogs (like this one) will change that, so our job is to understand our own habits, biases, reflexes, attitudes, behaviors, prejudices, instincts, fears and frustrations about money and have them work for us rather than against us. In other words, becoming a responsible money steward means getting a grip on the emotional triggers that prevent you from being an emotionally intelligent investor.
So, yeah, money will make you emotional.
It’s not just you. Money has many other enemies, too (taxes, inflation, market volatility, excessive fees, not living on a budget, excessive spending habits, and so forth) but those are other articles. Today we’re talking about the mistakes you make when you can’t keep your emotions in check.
So what’s the solution?
First, you need to identify and understand your existing emotional triggers, and how to make them work for you rather than against you. Working with a coach may be your answer. Shameless self-promotion, I know, but a seasoned financial coach can bring the perspective and experience you may be lacking, and help you keep your emotions from destroying an otherwise brilliant plan.
Next, focus on objective rather than subjective factors. Do the research and rely on the facts, not your feelings, and develop strong financial plans that contain highly detailed, objectives-based strategies.
The operative word is “unchecked.”
Research, facts and planning are emotions worst enemies.
The goal is to replace your emotional and random decision making process with a rigorous set of personal protocols regarding every aspect of how you handle your money.
As it specifically pertains to investing, if you’ve done your homework, set allocation parameters relevant to your situation, understand risk and time calculations, have made your portfolio decisions based on quantifiable planning objectives, keep cash available for opportunistic additions to your portfolio, and most importantly, curb emotional behavior, then the daily green arrow-red arrow war shouldn’t phase you, and you will become a more emotionally intelligent investor.
Read more: Oh, Behave!