Finance 8. Having a closed mind If you’ve ever had a heated discussion with someone about a contentious topic – be it politics, religion or who makes the best pizza in your town – you know how difficult it is to change someone’s mind. This difficulty has been studied extensively in personal finance: it’s called confirmation bias, the tendency to ‘overweight’ information that confirms what we already believe, while discounting information that contradicts those preset beliefs. In the context of our personal finances, that kind of closed-mind thinking can be a huge threat. That’s why most people who are good with money get into the habit of keeping their minds open before they make financial decisions, and actively seek out different points of view regarding financial strategies, investment ideas or spending choices. Sometimes they’re persuaded by these different opinions and sometimes not. But either way, they recognize that the process had value: by considering multiple sides of a financial issue, their decision is dispassionate and rational, rather than emotional and impulsive. The next time you face an important financial decision, seek out a second opinion. This could come from a qualified professional such as a wealth advisor, a financial planner, an accountant or someone in a similar role. Or it could be a close friend or life partner who knows you well enough to identify your blind spots and challenge you when you’ve got your thinking wrong. Wherever it comes from, a second opinion will give you the additional confidence which comes from knowing that you’ve reached a conclusion based on rational analysis rather than ‘gut feel.’ 9. Inability to admit that you’re wrong Most of us who have been earning, saving and investing money for a while have a couple of stories about the not-so-smart financial decisions which we’ve made. Many of the world’s smartest and most knowledgeable money managers have gone on the record with similar stories of the bad ideas or ‘unforced errors’ that they’ve made on the way to wealth. If you want to get good at money – managing it, making it, using it to achieve your life goals – you need to be able to admit your mistakes and learn from them. In practical terms, that means being able to accept losses from time to time. It means thinking about the things which you did wrong as much as celebrating those things that you did right. It means getting rid of the ‘losers’ in your portfolio and re-deploying capital into more promising opportunities, rather than hanging on to bad investments in the hope that they’ll come back. Here’s the hard truth about investing (and, if we’re being honest, about life itself) – no matter how prepared you are, no matter how much you’ve thought about it or how much research you’ve done, no matter how much skill or experience you’ve acquired, sometimes things just don’t work out the way we want them to. If you can’t learn from that experience, you’re almost certainly in store for a lot of financial turmoil. 10. Going ‘all in’ Excess and money are never a good match. When it comes to your finances, going ‘all in’ on anything – allocating a significant chunk of your net worth or your cash flow to a huge mortgage, a single stock or investment property, or holding the vast bulk of your net worth in a single operating business – can lead to very bad things. Instead of managing your money in extremes, follow the age-old wisdom and aim for balance in all things. If you have too much home or too much car for your cash flow, plan to downsize. If your portfolio is overloaded in a single investment or single asset class, diversify into different baskets. Unless you’re willing to commit several hours a day in front of a computer screen researching such opportunities and constantly tracking what’s going on with them, be cautious with speculations and ‘moonshots’ and, instead, emphasize conservative, blue-chip companies with proven track records. Above all, be on guard against the mindset that leads to all-in thinking: the mistaken idea that you have to swing for the fences with every investment idea, or that you have to go big or go home when it comes to your life goals. Most of us can get by most of the time by taking a smoother, steady-as-she-goes approach that doesn’t expose our finances to excessive risk. 26 | www.snowbirds.org
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