I’ve had countless conversations with people about money, and one theme consistently emerges: anxiety. Everyone has a vision of their ideal financial life, but few have a concrete plan to achieve it. After many discussions on this topic, I’ve developed a strategy that might help.
Many of us repeatedly make the same financial mistake: buying high out of greed and selling low out of fear, despite knowing intellectually that it's a terrible idea. This behavior is most evident in market cycles. When sectors are booming, people pour money into markets to chase performance. But when sentiment changes, and investments plummet, investors rush to escape.
Humans don't fit into an algorithm. This is particularly true when we’re talking about humans and their money. Because “Humans + Money” is a messy little cocktail that economists refer to as a complex adaptive system. “Humans + Money” is complex because cause and effect can only honestly be identified with the benefit of hindsight, and it’s adaptive because our interaction with the system changes it. Try cramming that into an algorithm.
One of the most challenging personal finance issues we all face is an ever-expanding definition of “need.” Things we once thought of as clear luxuries somehow become necessities, often without any consideration of how the change in status happened.
I absolutely LOVE Tate's Chocolate Chip Cookies. Sometimes, though, I'll absentmindedly eat way too many of them. After all, they're pretty thin!
Security is a feeling… not a number Here’s a paradox: 1 - I know people who have more money than they will ever need, but are totally insecure. 2 - I know people who have almost nothing, but are totally secure. The conclusion this forces me to draw is that if security exists at all, it is a feeling… not a number. The good news is, that means we can have some control over it. The bad news is, that means it’s up to us to learn how.