22 Reasons Why you are Awful at Managing your Finances
People usually get better at things over time. We're better farmers, safer pilots, and more accurate weather forecasters than we were 50 years ago.But there's something about money that gets the better of us. If you look at financial crises, bubbles, personal debt levels and savings rates, I wonder whether people are just as bad at managing money today as they were in previous generations, maybe even worse.It's one of the only areas in life we seem to get progressively dumber at.
Here are 22 reasons why people are awful at managing money.
1. You think $1 million is a glamorously large amount money, when it's the minimum amount most people will need to cover their definition of a decent retirement.
2. You work in a stressful job in order to make enough money to have a stress-free life. You see no irony in this.
3. You work so hard trying to make money that you don't have time to think about, or plan, your finances. This is the equivalent to spending so much time buying exercise equipment that you have no time to exercise.
4. You hate finance, think it's confusing, and don't want anything to do with it. You do, however, love money. You see no irony in this.
5. You don't realise that when you say you want to be a millionaire, what you probably mean is that you want to spend a million dollars, which is literally the opposite of being a millionaire.
6. You try to keep up with the Joneses without realising the Joneses are buried in debt and can probably never retire.
7. You spend lots of money on material stuff to impress other people without realising those other people couldn't care less about you. You'd be shocked at how few people care where your purse was made or how much noise your car makes.
8. You associate all of your financial successes with skill and all of your financial failures with bad luck.
9. Rather than admitting and learning from your mistakes, you ignore them, bury them, make excuses for them, and blame them on others.
10. You anchor to whatever price you bought a stock for, without realising that the market neither knows nor cares what you think is a "fair" price.
11. You say you'll be greedy when others are fearful, then assume the fetal position when the market falls 2%.
12. You're investing for the next 40 years but get stressed when the market has one bad day.
13. You think you can be a successful day trader when the hedge fund you're competing with can read a news report, figure out what it means, and place a trade, make a profit, and exit that trade in literally the time it takes you to click on said news report.
14. You think you're too young to start saving for retirement when every day that passes makes compound interest a little bit less effective.
15. You spend a month researching the best washing machine, fridge or coffee machine then invest many more times in a speculative resources or biotechnology stock based solely on a tip from a person you don't know and shouldn't trust.
16. You're willing to work hard for $30 an hour, but too lazy to spend an hour consolidating your superannuation accounts that could result in thousands of dollars of free money.
17. You start saving a little bit of money. Great! It's better than nothing, but I see a lot of people who are proud of their savings when in reality it's an infinitesimally small percentage of what they'll need to retire. As the saying goes, "Save a little bit of money each month, and at the end of the year, you'll be surprised at how little you still have." If you think saving 30% or more of your income is insane, do the numbers. It might be close to what you'll need to retire happy.
18. You think the stock market is too risky because it's volatile, without realising that the biggest risk you face isn't volatility; It's not growing you assets by enough over the next several decades.
19. You think paying your financial advisor and other money managers 2% a year seems reasonable, without realizing that it'll probably eat up one-third or more of your long-term returns.
20. You're unable to have a good time going for a hike, a bike ride, a swim, reading a book, or anything else that's free (or cheap). Having cheap hobbies is a large, yet hidden, asset on your personal balance sheet.
21. You underestimate how fast a company can go from "blue chip" to bankrupt.
22. You nodded along to all 22 of these points without realising I'm talking about you. That goes for me, too.
Morgan Housel is a writer with Motley Fool
Until next time, as ever, I wish you happy and profitable investing.
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