Most people make good money, but end up with very little… Why?
People’s spending habits are controlled by emotions, only we use abstract reasoning to justify our emotional expenditure. For example, you fall in love with a new display house and buy it… Later you justify your purchase because it’s closer to work, it saves you fuel, it’s more economical than renovating the old house. But the real reason for the purchase is simple - you feel good about yourself having a bigger home – congratulations, you’ve given your ego a boost.
What I find interesting is that no one ever does the sums on how much you’ll actually save on fuel or what it would have cost to renovate. Why is that? My guess is that you know it won’t support your reasoning.
So what’s this got to do with investing? Simple; control your emotional impulses on spending and you’ll be richer. Investing is a long-term game, with two key rules; firstly control you’re spending so you have the funds to invest, secondly structure your investments and income in the most tax effective manner. Once you can control these two things, you can leave the rest to the experts.
Next time you want to give your ego a boost, think how you’d feel with an investment portfolio worth $1 Million!