How your behaviour affects your money 💸
A successful investor is not necessarily a person with a team of analysts and all the fanciest prediction tools. No — a successful investor can be someone who makes sensible decisions, and who can control their behaviour when managing their money.
Here’s how to do it.
Define your goals
Success is the accomplishment of a goal. You can’t be successful if you don’t have a goal! Whether you’re saving for retirement, a family holiday or your wedding, having a clearly defined goal will help you stay the course.
Your goal will also help determine what kind of investment you’ll need. You can start off with something easy and accessible like a money market account or a tax-free savings account, but in time you’ll probably want to meet with a financial advisor, who will be able to make sure you’re invested in the right products to meet your goals.
Investments take time to deliver good returns. We all know that sinking feeling when the market isn’t performing — it’s so tempting to cash out and limit further losses. But that kind of short-term decision-making is detrimental: if you disinvest, you will lose out big time when the market picks up again.
Markets rise and fall all the time, but if you wait long enough the general trajectory is up. The bumps along the way are unavoidable. Try to block out the noise and remember why you invested in the first place. Then hang in there, ride it out and watch your money grow.
Beware of lifestyle creep
Lifestyle creep is when you increase your standard of living as you earn more. Your thinking pattern starts to change — you begin to regard luxuries as your right, not as a privilege! It’s basically self-generated inflation, which doesn’t do anybody any good.
If you’ve just been promoted at work, don’t go and buy a brand new car. Rather lock in long term happiness by using the extra money to increase the contributions to your retirement fund or other investments. While you’re at it, set your investment debit orders to increase automatically each year. That way you’ll make sure to grow your savings along with your salary.
Spread the load
Diversification is key to a healthy investment portfolio. It means spreading your money across different assets classes and industries — and even different countries. In other words, don’t put all your eggs in one basket.
If you’re just starting out, you’ll choose one investment vehicle like a retirement annuity, but over time you can choose other investments in other areas to balance your portfolio.
The important thing is to enjoy your money journey. Use all the tools at your disposal to help you make the right choices on a daily basis. All those little behavioural changes over time will put you on the right path to financial freedom.