Why your money mindset matters

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Continuing on the theme from last week about developing your optimal mindset, I thought I’d spend some time this week looking at your money mindset and why it’s so important when it comes to building wealth.

There’s so much more to it than how much money you have in the bank at any one time: you have to be disciplined. Your mindset around money is going to be the key to your success – so here are some of my top tips to see you right.  

Comparison is the thief of joy

Don’t be driven to compete with other people and what they appear to have.

When I was still at college, I came to London to visit some friends for a weekend. They’d gotten good jobs in banking and were earning big money, whilst I was still back in Ireland studying architecture. Because they were earning so much money, and had expense accounts and so on, they would think nothing of dropping £1000 on a night out.

I remember coming back and thinking “How can I compete with that?”.

And the reality is, I didn’t have to. Be your own person.

Be clear on your goals

In 2008, before the financial crash, 136 helicopters were registered in Ireland. Two years later, something like 110 of those helicopters had been repossessed, because the people that had bought them didn’t have the money to actually pay for them. They just wanted to look like bigshots flying around in a helicopter.

Get your own mind set on what your goals are and what your future is. I mean, if drinking a thousand euros or pounds worth of alcohol or buying a helicopter is appealing to you, then go ahead and do it! But make sure that you’re not comparing yourself with somebody who has completely different values in life and trying to emulate them – your two interpretations of success could be poles apart.

Play the long game

Very few people are thinking about 10, 20 or even 40 years from now. It’s easy to think that when you’re a bit older, you’ll start putting money aside, because right now you want to have fun. And that’s one of the big problems with financial wisdom: most people want instant gratification.

If the bank has given them a loan and they want to put it into their lifestyle, they haven’t actually made that money. They’ve just got access to it. Understand that money is like a snowball: if you keep rolling it, it keeps bigger, but as soon as you stop rolling that snowball, it just sits there at the same static amount. And then it starts to melt and shrink away.

It’s the very same way with money, retirement and the ability to grow investments. If you’re building a nest egg but start chipping away at it early, you’ll end up with very little to show for it when you’re older.

Really think about saving now, because at some point in the future, you’re going to reach a point where you ask yourself, “Why didn’t I start saving a couple of years ago?”. They always say that the best time to buy a property or to start saving for your retirement is yesterday. And when’s the next best time? Right now.

Plan for the worst

There’s an old saying in carpentry – ‘Measure twice, cut once’, and that’s something you should do when it comes to your money. Never forget that your portfolio is completely connected to the wider economy and that elements beyond your control can all have an impact on your money.

When you buy a property you may assume certain figures and interest rates, but these are never static. Always build in a contingency to give yourself a buffer: make small adjustments to your budget and see how that plays out on the overall metrics of your deal. You could find that all it takes is for a rise in interest rates and you’re over-extended, financially.

Sometimes we can plan and plan but external events occur outside your control and catch you unawares. Continuity bias makes us assume that when everything is going great it’s going to stay that way: we don’t plan things that could change our personal circumstances or the global market overnight. It’s always a good idea to make a plan in the event of something bad happening – if one deal goes wrong, will it pull down your entire portfolio? Have you tied your borrowing into other assets? Don’t paint yourself into a corner, leave yourself a little wiggle room. It may seem like I’m catastrophising now but this single piece of advice may just prove invaluable to you in the future.

Don’t get attached

If you’re selling a property, you might find yourself getting emotionally locked in on the price, and if you receive a lower offer than you want it can feel like an insult. I‘ve been in this situation before and had to sit back and reflect on whether I was actually receiving a fair offer but just didn’t see it that way. If that happens you to you, take a moment to consider if you’re analysing the situation correctly.

You have to remember is that the property market is a cycle: think about the wheel of a bike going round and round. If you’re in it for the long haul, you’ve got to understand that the cycle is constantly going, and over your career prices will fluctuate – prices and demand will go up, and they’re going to go down. You’ve got to have the resilience to weather that cycle: don’t get hung up on prices. When a property price reaches its maximum, it doesn’t mean it’s going to stay there!

You can’t underestimate how important your money mindset is. Everyone has their own unique outlook when it comes to money and finances, and understanding this mindset is key in order to create a strong financial future. It’s important that you become aware of your thoughts and feelings around money – take note of them, learn from them, and actively work on transforming these negative beliefs into positive ones.

When it comes to investment, taking the time to develop a positive money mindset first is invaluable. By doing so, you’ll be able to achieve success with your financial goals by taking confident actions and steps towards the life you want!