Sometimes, the biggest barrier between us and our goals is – ourselves. But with a new year, comes an opportunity to start fresh and do things differently.
So, take a moment to look at how you respond to financial situations: are any of these common mindsets blocking your path to financial success?
Impulse spending
Do you often find that you’re spending more than you expect to? Impulse spending is a common behaviour, and over time, it can turn into a costly habit.
In many ways, technology has made impulse buying a lot easier, with more of us loading our credit card details onto our phones and smartwatches. That’s why it’s even more important to be deliberate about our spending habits.
A good option can be to set a rule for yourself that, every time you’re about to make a discretionary purchase, you have to wait a few hours – or even an entire day. Once the waiting period is over, you may find that you no longer want the item.
Investing FOMO
Are you an investor looking for the ‘next big thing’ and trying to time the market? Not only timing the market is impossible, but it can also lead you to miss out on opportunities.
Sometimes, it’s the so-called ‘fear of missing out (or FOMO) creeping in. But when it comes to investing, following the pack is usually not a good strategy. The key thing is to choose your investments based on your needs, goals, and circumstances. And most importantly, it’s important to have a plan – your plan, not anyone else’s.
Anchoring bias
Are you relying on the right information and thorough research when making financial decisions?
People often fall for ‘anchoring biases’, which means they rely too much on pre-existing information, something familiar, or the first bit of information they learn. That’s their reference point or ‘anchor’. The problem is that, when circumstances change or new information becomes available, they tend not to adjust their plans.
The anchoring effect can occur daily, and in many different aspects of our lives. So, it’s important to recognise it and avoid it. By giving you an external perspective and providing reliable information, working with an adviser can help you do just that.
Loss aversion
No one likes to lose money, but when investing, avoiding risk altogether can see you miss out on significant long-term returns.
Markets always go up and down, but in the long run, the value of your investment portfolio is likely to grow. And if your investment horizon is longer than 10 years, for all intents and purposes, you are a long-term investor.
Rather than focusing on short-term market fluctuations, make sure you choose an investment strategy that aligns with your risk profile. For example, if you have a long investment horizon, a higher-risk portfolio may be suitable for you (provided your attitude to risk allows it, of course).
Like to talk?
Whatever you’re trying to achieve, or whatever the behaviours you want to keep in check, we can help you get your financial life in order. Give us a call today.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
