How you think about money impacts on your retirement finances
The way we think about money largely determines how successful we become at managing cash flows and accumulating wealth.
Some people find the subject of money of little interest. On the other hand, some can be so obsessed with money and may be so driven that they become greedy—out of control even.
Fear and greed can be two underlying drivers of investor behaviour. Both these forces impact investment markets and lead to highs and lows in key indicators such as the stock market index. Unfortunately, fear and greed can be irrational and may be based on incomplete or incorrect information.
Valuation by money
Money is a form of valuation, which is denominated in terms of currency. In effect, it becomes a way of keeping score. We put money values on shares, property and anything else we can buy and sell.
However, money isn’t an appropriate way of expressing the value of such things as friendships and personal or sporting achievements.
The ways we individually handle money varies enormously. Our experiences, training and immediate circumstances—along with the impact of the people around us—influences our thinking about money. As does the media and advertising.
Our beliefs, values and attitudes also influence the way we think.
How we think about money is the single most important issue that determines monetary outcomes. One of the best books on personal financial matters is actually titled Think and Grow Rich by Napoleon Hill.
Asking the right questions
A critical part of the thinking process is the need to be well informed, and we do this by asking questions. In fact, the biggest downfall of many investors is that they don’t ask the right questions at the right time! In terms of financial planning, there are no ‘dumb questions’.
A useful way of focusing on these questions is to group them into three main categories:
- Questions to ask yourself
- Questions to ask a professional adviser, and
- Questions to ask experienced investors
The quality of the questions you ask will determine the quality of the answers you receive. The better we become at asking questions, the better the quality of the questions we ask.
Successful investors are always learning, and they continue to learn by asking more questions.
It’s always wise when seeking investment advice to list down the questions you need answered before you make an appointment.
Asking questions is better than making statements, especially when you need to learn. People who ask questions are generally perceived to be genuine, while people who make statements about their own knowledge can come across as presumptuous.
Genuine questions are more likely to get a friendly, engaging response. We can learn more from people than we think.
Investors need to ask questions for these key reasons:
- To develop trust
- To create understanding
- Define needs, opportunities and issues
- Establish expectations
- Commit both parties to specific actions
- Add opinions and flexibility
- Separate what is important from what is not important
Successful investors only invest in things they understand. We can all increase our knowledge and understanding of investment markets.
Confucius says, ‘A man who does not think and plan ahead will find trouble right at his door.’
Owen Weeks is director and authorised representative of Lifestyle Matters Pty Ltd and a Registered Tax Agent. He is a Fellow of the Financial Planning Association, a Fellow of the Institute of Professional Accountants, and an Honorary Fellow of the Association of Superannuation Funds of Australia. He is also the co-author of Retire Bizzi and Where to Retire in Australia.