Letting cool heads prevail with your investment decisions
Humans are complicated, when you add money into the mix you can throw everything you thought you know about most humans out of the window. We have all watched how families are torn apart by inheritances, marriages fall apart when they hit tough financial times – hell people even murder over money. One of the most fascinating aspects of my job is trying to navigate the tightrope between helping my clients look after and grow their money – and coping with unhealthy or unrealistic expectations around their wealth. I don’t always win!
Emotions around money are often deep-seated, and come from childhood, and are very difficult to change, at best they can be acknowledged and managed. Sometimes a person brought up in austerity will be very careful with their money, other times it will be the complete opposite and they become a spendthrift. Whatever has caused your emotional relationship with money, it isn’t helpful to continue to blame your childhood, just find tools to make sure you don’t sabotage your financial freedom or find someone to partner with. Creditors are not going to care what brought you to bankruptcy, they just want their money.
Financial behaviour is one of the biggest causes of marriage and relationship breakdown, and with 50% of marriages failing, you need to put measures in place to protect yourself. An antenuptial contract is absolutely essential, and perhaps you should also consider ‘without accrual’ (or at very least make sure your pension is kept out of the joint assets.) Big assets bought together should be jointly owned, and if both partners agree on a sty-at-home spouse, they need to be compensated with at least retirement fund contributions.
The Spendthrift personality (where money burns a hole in their pocket) are often described as ‘generous’ or ‘kind’ and as such, is a way of buying self-esteem and status. It’s the ‘Keeping up with the Joneses’ syndrome. Obviously highly toxic to your wealth in the long term, but perhaps fun while you’re doing it. The opposite personalities are Scrooges or Misers. Obviously not a label that many of us aspire to especially if it is accompanied by an adjective like a ‘mooch’ (taking from others with no intention of reciprocity, always wanting something for nothing). A healthy financial personality obviously lies somewhere between these two extremes, but are you rational enough to know what your unhealthy financial habits are? Just when I think that I have seen the full range of financial emotions, I am surprised by a new one. I have come across people who…
- Won’t sell a vrot share because they inherited it from a much-loved relative.
- Would rather take advice from an (unqualified) friend or relative than a professional because it boosts the friend’s ego.
- Think that they make a ‘profit’ every time they sell a house without taking the costs or inflation into consideration.
- Won’t sell a poorly performing unit trust because it is only a ‘paper loss’ and needs to behave itself to come back to par first.
- Are adamant they are not going to live past a certain age, so it doesn’t matter if they use all their capital from then to now. (I guess this is the perfect financial plan where the last of your wealth is used to bury you, and then turn the rest into ‘Smutties’ (copper coins that used to have the head of Jan Smuts) and chuck them in your grave so you don’t crawl out).
- Would rather ‘fire the messenger’ when given bad news by a professional ( your retirement funds are only going to last 10 years so start sucking up to the kids) than actually make the changes needed to sustain their wealth.
- Will endlessly waste the time of professionals with second, third or more options for free, never make a decision and expect the same with implementation and management (Scrooge meets Mooch).
- Will let one poor experience affect their financial relationships forever. Trust is a very fragile thing and is at the core of all healthy financial relationships. (Learn from the experience and move on as you do with all relationships.)
- Are easily conned with empty promises of above-average or guaranteed returns – being so focused in on the prize without investigating the wrapping. Greed is a very human emotion, conmen rely on that.