Understand Finance Better: Think About Money Like a Pro

“It’s all in your head.”

When it comes to money management, that’s not something you want to hear. The price of oil has nothing to do with what’s in your head, nor do the mortgage terms you’re offered by a lender. Bank statements provide definitive proof of how much money you have, so it’s not fair to say your financial standing is “all in your head.”

And yet…

How much of the investment game is actually mental? While there are outside forces affecting your income and prosperity, how many roadblocks manifest because of how you think about money? You probably don’t realize it, but your financial assumptions may be the very thing that’s keeping you from getting rich.

How does one go about fixing this problem and understand money better? That all depends on the person and, in many cases, the spouse they married. However, there are some specific mental habits you can start changing right now. These don’t have to become daily mantras, but focusing on these five ideas will help you combat your negative financial thinking and get your head right as you prepare to brighten your future.

1. Choose to Be in Charge

There are a million things that contradict the idea of financial control. I’ve stated many times that no investment is a sure thing and no one can accurately predict which way the markets will turn on a given day. I’m well aware that this isn’t particularly inspirational. However, it’s important for investors to know the realities of money management before they can take control of their money.

Fortunately, there’s a difference between being clairvoyant and being in command of your situation. Do you know the exact closing price for Wells Fargo tomorrow? Definitely not. Do you know that banks constitute a massive and vital part of American industry? You sure do, and that information is much more important than whatever can be gleaned from a daily drop or rise in a particular stock.

Market fluctuations will always disrupt best-laid plans. That is a simple truth of investing, and making peace with that reality is what allows the most prolific investors to stay calm when things look bad. If you think you lose control of your money once it’s invested, you desperately need to adjust your financial assumptions. Here are some strategies to help you stay in command:

● Diversify

● Invest more, not less

● Read

Investing overwhelms a lot of people who don’t understand finance, and the unfortunate result is often to pile one’s eggs into a single basket. Instead of spreading money between various assets, people decide to focus on one investment, as if they can will that particular stock or property to shoot up in value. When you take this route, you give up almost all of your control.

To really feel empowered, you need to present yourself with opportunities. Diversification enables you to move between different markets, to counter a bad investment with a good one, and to grow your wealth even when the economy has a hiccup. If one of your stocks tanks, you won’t have to panic because you still have other, safer investments. This comes in handy if you and your spouse have different money personalities: a risk taker married to a safety seeker won’t need to talk them down from a metaphorical ledge every time the market has a bad day.

Diversification goes hand in hand with investing substantial capital. When you invest small amounts, you actually handicap your effort. Does this mean you have to get rich before you can start investing? Not at all. It just means investing five dollars in the stock market won’t do you much good; better to save a little more and make a bigger splash.

It’s very hard to diversify when you play it too safe. If you buy one share of two hundred different penny stocks, it’ll take years and years to see any returns on that investment; it’s possible you’ll never recoup the money lost on all the different service fees. Meanwhile, if you buy 200 shares of one stock, you actually stand to make money as the markets rise. And while you won’t have a diverse portfolio if you buy 200 shares for one company, things will start taking shape when you buy 200 shares of 10 different companies.

This is the financial thinking that trips up so many first-time investors. It’s scary to invest a lot of money when you don’t know exactly what’s going to happen. It’s much less frightening to invest a hundred dollars in a few different stocks and just see if any of them go up in price. Unfortunately, that tactic limits your earning power and will likely discourage you from future investing. If you want your money to work, you have to give it a fighting chance; you have to take charge and be confident.

How do you know where to confidently invest a significant amount of money? By doing just what you’re doing right now – you read. Pick an industry that interests you and read about the different companies that are doing exciting things; read about real estate and the latest developments in the housing market; learn about foreign markets and how different resources and currencies are affecting the global economy. All this research and reading might not make you instantly rich, but it will help you make informed decisions, and it will definitely help you feel more in control.

When it comes to investing, knowledge is power. My net worth was deep in the red before I started educating myself about money, and I was able to take what I learned and quickly improve my financial position. As soon as you realize you have the ability to take control of your money and manage your own wealth, you’ll start seeing things change for the better.

2. Pick Results Over Billable Hours

When you think about your job, do you get bummed out? This is a tragic reality for a lot of people in the workforce. While some jobs are less than glamorous and many companies don’t treat their employees well, I think the bigger problem is how many people approach their work. If you view Monday through Friday as 40 hours in which you’re just hoping to survive so you can enjoy the weekend, that’s not a setup for success.

I’m not saying you should quit your job, because I’m sure you need to earn that paycheck and support yourself and your kids. My point is you need to make more of your situation by thinking about the work you do, why you do it, and how you can benefit from getting results. These ideas drive the most successful entrepreneurs, and you don’t have to launch your own business to become a self-starter.

It’s easy to get caught up doing the minimum. Why work harder than necessary when you’re going to get paid either way? You can definitely survive without going above and beyond, but if you want to increase your wealth, retire early and live your best life, you have to stop trying to coast through the work week. Understanding money goes beyond what you decide to do with the salary you earn – it starts with how you approach each day in which you can earn more money.

If you work freelance, it’s easy to see the correlation between how hard you work and how much you earn. If you have a nine-to-five job and a steady salary, it’s a little trickier to find that motivation. That’s why you need to be driven by results instead of clocking in and clocking out. In theory, the better your company does, the better the employees do. I know this isn’t always the case, but you definitely stand to make more working for a business that’s doing well.

Each day offers an opportunity to do more, both in the workplace and at home. After giving it your all at the office, come home and work on your passion projects. We live in a day and age where anyone can sell products or provide a service online, so nothing should stop you from looking into a side hustle. A little extra effort and a focus on results can enable you to earn more money much more quickly than you’d expect.

Few things hold people back more than waiting for a paycheck. If you can adjust your financial thinking to see as much value in the work as you do the reward, good things will happen.

3. Know that Fear Is Different from Caution

Everyone should invest with caution. If you throw your money around without educating yourself first, you usually end up with less money and more regret than when you started.

Unfortunately, the line between being cautious and being fearful can be hard to distinguish. At a certain point, the caution that kept you from making a rash decision becomes the fear that keeps you from taking any action at all. You need to pinpoint that threshold for yourself, then try to get fear out of the equation. You can trust caution, as that instinct typically motivates research and strategic financial thinking. Fear, on the other hand, is just a worry that things won’t work out in the future. While there’s always a chance your investments won’t pan out, being afraid has no real bearing on the end result.

Fear is easy. It frequently comes from a lack of understanding, and people often don’t take the time to get to understand finance and thereby become less afraid. Does this sound like something you’ve dealt with? If you believe worries and skepticism play into your financial assumptions, it’s time to address the issue. You may not be able to flip a switch and say goodbye to your fears forever, but you can recognize the thoughts and feelings that are holding you back:

● Fear of loss

● Fear of being wrong

● Fear of the unknown

If you battle any of these sentiments, you’re part of the majority. It’s entirely normal to have an aversion to losing money, making a mistake, or stepping into an unfamiliar space. Nevertheless, overcoming these anxieties can mean the difference between moving forward and staying put. If you want to gain, you have to get over your fear of losing; if you want to be right, you have to accept that you’ll occasionally be wrong; if you want to find out what’s behind the curtain, at some point you’ll have to look.

I don’t want you to lose your cautious instincts. I do want you to be cautiously optimistic, and to push past your fears with the knowledge that you’ll survive the downs on your way to the ups.

4. Believe in Earning

Saving is an important part of wealth management. You need to save to buy a house, save for your retirement, keep enough savings in your emergency fund, etc. Where saving becomes a problem is when it’s substituted for earning. You can’t hoard your wealth and then get upset when it doesn’t grow. Put aside what you need for certain purchases, then focus on making more so you can keep the momentum going in your investment accounts.

Aside from making more and investing more, people who believe in their power to earn have an easier time recovering from loss. If you look at the financial history of any millionaire or billionaire, you’re going to see plenty of bad times mixed in with the good. The richest of the rich have lost massive fortunes, only to get back on the horse and rise again with even more wealth than before. These people never lose confidence in their ability to understand and make money, and that allows them to invest and spend without worrying about saving every last penny.

It’s hard to save your way to a vast amount of wealth. There was a time when you could just put your money in CDs or high-yield savings accounts, but that’s no longer the case. Instead, you need to invest in stocks, assets, and commodities. Have a savings account to keep some level of liquidity (a cash investment is still an investment) and then send the rest of your dollars on a mission to find and conquer more dollars.

Just as you work for a paycheck, your investments can work for returns. Figure out a way to balance your financial thinking between earning and saving, and you’ll see your priorities shift in a positive way.

5. Find Opportunity Everywhere

Every investor, from total beginners to financial geniuses, misses opportunities. No one hits every winner, and we all have to deal with the regret of missing out on a strong investment. For some, the disappointment is completely defeating; for the rest of us, it means it’s time to move on to the next thing.

From every smoldering wreckage of a failed endeavor rises another opportunity. For every great stock you wish you’d bought in the early stages, there’s a similar enterprise waiting in the wings. The price of real estate might be outside your means right now, but the rising cost of properties gives way to other business possibilities anyone can pounce on.

I guarantee there are investment opportunities within a block or two of your home. If it’s not land, it’s a small business, or a growing company that provides a useful service in your area. Maybe you have a responsible neighbor who needs a loan for some business equipment, or a local contractor is giving away a bunch of scrap metal that can be used or resold. Maybe none of these options exists, but one of them makes you think of something else that could work.

I think you get my point. Opportunity is everywhere, and someone else will take advantage of it if you don’t get there first. Your financial thinking can’t be stagnant; constantly consider and seek out new opportunities, then use caution and discernment to make sure you don’t act too impulsively.

As with everything in life, a good mentality plays heavily into your investing success. If you view things through the wrong lens, it’s much more difficult to invest with confidence and take advantage of favorable situations. Your thoughts about money, and how difficult or easy it is to make more money, might be the only thing standing between you and the wealth you’d like to have.

Changing your mind isn’t easy, especially when it comes to financial matters. This is a personal issue, and one of great importance, so I understand how hard it is to rewire your financial thinking. Nevertheless, that could be the best thing for you. Consider all your reservations and negative opinions, and see if they relate to any of the five points mentioned above. If you see a potential area of improvement, you’re already taking steps toward making positive change.

Make it happen!

Taylor & Megan Kovar

The Money Couple